Accelerate the Tax Efficiency of Roth TSP Distributions

Given the fear of future tax increases, why aren’t more federal employees utilizing the Roth TSP to provide a buffer from future taxes?

I ask this question all the time during workshops and individual sessions with federal employees. The most popular responses are: (1) I don’t understand how the Roth TSP works, (2) I will be in a lower tax bracket in retirement, and (3) I don’t like the withdrawal limitations of the Roth TSP.

If you would like to get a better understanding of how the Roth TSP works, click here to request Chapter 5: The Roth TSP, from my book: FedSavvy, Tools and Tips to Maximize Your Federal Benefits.

 

Avoid Abandoning Your TSP

Required Minimum Distributions (RMD) must be taken from an employer retirement plan by April 1st following the year you turn age 70 1/2 (unless you are still employed by that employer), to avoid a 50% IRS penalty of the RMD that was not taken. If you don’t take the RMD by December 31st of the year you turn 70 ½ and instead, take it by April 1st of the following year, you will avoid the 50% penalty but you will have to take two RMD’s that year.

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Fed’s Long-Term Care Just Got More Expensive

Long-term care premiums are expected to increase for federal employees around the end of 2016.

The Office of Personnel Management agreed to terms on a new seven-year contract with John Hancock Life and Health Insurance Company this past Tuesday.

OPM Secretary, Sam Schumach, said that the increase is due to longer lifespans and low returns on investments from program’s trust fund. (At least one of those problems is a good one to have.)

The increase will occur “no earlier than Fall 2016” according to Schumach and there is no solid estimate on the increase, though signs point to it increasing from anywhere between 5-25%. The last time John Hancock signed a new contract, in 2009, premiums increased 25%.

We will update as soon as we have new information.

For further reading, click here.

2016 Tax Preparation Checklist

Click here to download the 2016 Tax Tips Checklist

Senate Places Limit on Administrative Leave

Republicans and Democrats have come to a rare agreement concerning Federal Employees on Wednesday, passing a bill that will ultimately cut back the use of “Administrative Leave.”

“Administrative Leave,” is paid time off that does not subtract from vacation days, sick days, or other forms of leave. While there are many reasons this leave can be issued, it is often used as a suspension of sorts in order to get an employee away from the workplace until an official punishment, if any, is handed down.

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