#39 – Locality Pay, LTC, IRA vs TSP ( Part 2)

Locality pay, long term care and IRA versus TSP, part two, all on today’s Fenobabble.

This is Fednobabble.com where Kevin and Cassie make federal retirement benefits understandable for humans like you.

These two don’t hold back because they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

Hello, welcome, Cassie, welcome to another edition of Fenobabble. Hello. Hello.

OK, so I know we went over the past couple of months, so we should probably keep it shorter. So let’s jump in here.

I think I think it’ll be easy, especially with this question. Does the high threat include locality pay? What’s the answer? Oh, yes, yes. OK, that was easy. That’s it. I’d like to be able to expound on that, but. It’s OK, actually, I am going to expound on that and just actually, really, really quickly here, the answer is yes. And I don’t know that I don’t think that there is and it depends on this one.

I think it is just I can’t think of an instance where it does it. But the follow up question that I get a lot to this is, OK, well, what happens if I move to another state? Let’s say I’m in San Francisco and I get a huge locality pay and then I retire and I move to the middle of nowhere, Montana. Do I get to take that with me? And the answer is again, yes. You just you’re I mean, well, you take the high three that is included.

That includes the locality pay in that location. You don’t take it with you in your current pay. They are like it doesn’t locality pay, does it? All of you, that other position. But what I mean is that when they retire in San Francisco, do they get to take. Oh, and then they move. Right. Yeah. And then you move. Yeah. Because what they figure out your whole number is I mean it’s a number of factors.

It’s your locality pay, it’s your basic pay and it’s a few other things possibly put that together. That’s what it is, and then when you retire, if you move, then you get you get to take that number with you wherever you go. I want to clarify one thing, though. Yes, it does not always include overseas locality pay. Right, good distinction overseas locality pay is different than locality pay. Yeah, I want to I get that often where somebody thinks whether they go there to have their their last three years overseas or they come back thinking that their locality pay was included and so they’ll they’ll be compensated, then their high three average will be based on their higher pay overseas.

That’s not always the case. And actually, I want to say a lot of the times locality pay overseas is is not included, period. There are some special exceptions where it is, but it’s not common. So just assume that it’s not in general speaking terms.

Right. Can you know, it’s interesting that a simple question like this, the answer is yes. Right. It just plain old. Yes. But when you when you peel peel it back just a little bit more, you you find that there are still nuances and things to consider and things to be thinking about and questions to ask, questions to answer that, that help with planning. I mean that really can make a big, big difference like that.

Like the overseas locality pay is different than regular. Look at a locality pay and it’s treated completely differently. And you and I have watched people go overseas and do exactly what you said, thinking that they’re bumping up their high three when actually it’s hurting their high three and they froze up Kevin.

I froze up. No, I think we’re good. OK, yeah, yeah, it worked that whole time. Sorry, and I’m the only recording, and if it looks good to me, we’re we’re going to keep going Cassie.

Sorry. No, no, that’s OK. That’s OK. We’re just we’re we’ll go to the next question. That was good. All right. Next question. I have a long term care through the feds. So the federal long term care, is that transferable? Can can they take it into retirement is what they’re asking? Can I you know, can I retire and still have it continue on? Is it one of those benefits that even after I retire, can live on?

Yes, that’s the short answer. It is transferable to retirement, if that’s what you’re thinking of. However, the government is going to still have their hands on it, you know, completely on that policy.

So just think about that in a minute and say, wait a minute. What do you mean? OK, just just to make this clear. What do you mean? I don’t own the policy because it’s on me. Right. I got it. It’s mine. What do you mean? I don’t own it. That’s true, but the government is the owner, you are the insured. And people think, oh, well, I paid for this, and so automatically I’m.

You know, taking care of, but it’s just like your family coverage and things like that, even though the house that insurance and the housing insurance, but they use other providers. Like further federal long term care. You actually have a policy? Well, the government has a policy for you with John Hancock.

ROTH is just an insurance provider, and it’s the same with FEGLI, your FEGLI is with a group MetLife Policy, it’s not through the government, which I guess is a good thing. But on the flip side, you don’t know the policy either. And so how good is it? I don’t know. That’s up to you. Yep.

So, yes, it’s transferable. You can take it. But here’s the other thing. Your premiums for long term care are not going to be taken out of your interim checks. Hey, dental and vision, long term care, they’re not automatically taken out of your interim pension checks.

You’re responsible for those premiums to pay those directly to the federal long term care. You know, whoever.

Well, federal long term care insurance plan is who administers that, right? So you’re responsible for paying those premiums directly to that entity rather than that coming out of your pension. Now, you can request those premiums to be taken from your pension later after your pension is finalized. But in the meantime, between the time that you start getting those interim checks, which are a portion of your pension to the time your retirement application is finalized, you’re responsible for those payments.

So as long as you’re not lapsed on those premiums, then you bet you can continue those into retirement. Right.

Again, it’s it’s a pretty simple answer. The answer is pretty much yes. But there are so many other things to consider. I think that’s a I think that’s a theme of this episode is easy answer, but. The ramifications or the you know, the slight differences can actually make a huge difference again. Well, you know, when I when I put these together, sometimes I it’s not that I am putting them together with answers like that, but they just happen to come out.

So look at that. Yeah, I planned it all, I’m sure.

All right. Next one. How is a traditional IRA different than a traditional TSP? Well. Go ahead, Kevin. OK, yeah, so there again, you put money in. And it’s supposed to grow and depending on how you put it, well, with a traditional, you’re not taxed up front, so it’s deferred. In both cases it’s deferred. So the taxes come out. When you go to pull it out, when you when you take a dispersement, that’s when you’re taxed on it.

So that that’s the same for a traditional and a ROTH.

However, for example, in a in a traditional IRA, traditional Cassie.

Say that again to ROTH. Yes, I’m sorry, yes, I said yes, this is an international TSP. I mean, that’s the same for these two different types of plans, right? Yes.

Sorry, I yes, I shouldn’t even say ROTH right now because we’re not talking about ROTH at all. But I, I do that all the time. I’ll get I’ll switch them anyways. We’re talking about traditional. So in this. Yes. One of the things that they actually changed and actually I will mention ROTH now is that it used to not be that you could take out money and have it only come from traditional. You can do that now, which is which is good from.

So you can say I only want my traditional TSP to come out. You can do that now and you can do that in an IRA as well. So there are a couple of similarities. Well, right.

Because you’re not going to have if you have a traditional IRA, you cannot have ROTH within that traditional IRA. And it’s just a traditional policy because it’s its own thing. Right.

So when one of the one of the differences, however, comes with our RMDs. For example, with in the TSP, if you get a required minimum distribution, so you reach age seventy two and the IRA says, hey, we want our tax money, we’re going to make you pull out some some money from your TSP so we can get our taxes is basically what it is in a in a traditional IRA.

You can say, hey let’s say I have three IRAs, I can pull them from any one that I want. I can pull it all from one thing. I could distribute it or I can you know, I can do some things with it or I can shoot. Honestly, I can choose not to. Now, there are penalties for that, but I can choose if I want not to within the TSP, it’s going to be forced out and you’re not going to have an essay on whether to do it or how to do it.

It’s just and you can’t spread it out between your IRAs as well. Now, it will come out of your TSP and they’re going to make you do that. It is much more rigid in that way.

Yes, and then yes, I would say the last thing. Go ahead, go ahead. No, OK.

I would say the last I would I would say the last thing is within within a traditional TSP. And honestly, this goes for ROTH as well. But I’ll just point this out now. When I go to pull money out of the TSP, let’s say I have 50 percent in my G, 50 percent in my S. Every dollar I pull out will come out 50 cents from each fund and. Right. You don’t have a choice in an IRA. You can say no, only give me 80 percent of my traditional money in the in this in one fund and 20 percent of my traditional from another.

And and doing that make I look, I look I’ve, I’ve seen the numbers Cassie and I don’t know if you’ve seen this from an IRA perspective, but if someone can do that, they can make their money. Last year’s longer the same amount of money, but it’s a several. Yes. I was looking at one example recently, seven years difference of how long someone’s TSP would last them because they’re able to choose from here and here and not do it the way the TSP forces you to do it.

Big difference. I think there’s other things as well in the features of the different types of policies, depending on where you’re located, what state you’re in. Things like that, then there can be additional features to a traditional IRA that the traditional TSP doesn’t offer and vice versa, depending on your age, on the traditional TSP and traditional IRA and those that comes into account with different features and benefits. Which raw options are different, like you were saying, not just the different ones that you can withdraw from, but the penalties that are imposed on withdrawing that money.

Right. Somebody who’s going to retire earlier may want to only put a portion into the traditional IRA to have take advantage of those different features and benefits, but then take advantage of the penalty free withdrawal option depending on what that retirement looks like for you in the traditional TSP. And so we got to coordinate these things together. If you’re looking at both options, which most of the time there are benefits to having both as opposed to one or the other, you’re right.

I can’t say that. That’s not always that’s always the case. Sometimes one might be favorable over the other per person situation, but I don’t know what that looks like for you. So I can’t say, yes, this is going to be best for you or again, I’m not a financial planner. I don’t offer any of that advice.

I’m not certified or licensed to give that advice. But I want you guys to be aware that you have to take a look at these from this perspective. OK, how is the how are these two going to be different? Why are they different? And is it going to be worth it for me? Is it advantageous to have all or one or the other and, you know, it’s really you’ve got to boil, you’re going to talk to a financial planner or somebody who understands those situations?

I can tell you the plan, the different types of plans that are available. No one but the different rules are for your state, number two, and the different features and benefits and who understand the TSP and what that entails, because you’ve got to have somebody who understands that, because if they’re not if they don’t understand the TSP, they might tell you the IRA is completely better for you and then screw you for a couple of years. Yep.

When you need money and access to cash and then you’re having to pay penalties on that money, an extra 10 percent, that could be a lot of money depending on how much you need. So we really have to talk about the talk to somebody who understands both both sides of the house there.

Yeah, and I would just to that point right there, I have seen people say, well, yeah, I dealt with the TSP before. I’m sorry, that’s not good enough. I hate to say it unless they know TSP inside, unless they have worked with many, many, many federal employees, working with a few federal employees. And I’ve dealt with that before. Isn’t enough that that isn’t even if if a financial adviser, a planner says, yeah, you know, I have some federal employees as clients.

No, I personally turn around and walk away because unless they have been through this many, I’m in like 100 plus times. Unless they’ve done this over and over and over again, they’re not going to see the nuances. They’re not going to understand all the differences to to do it right. And so, you know, that’s that’s my plug for a specialist, someone who understands the rules, because as you as he give you one more just real quickly.

Which I TSP. If I take some cash out, let’s say I’ve retired and I take some cash out, I have to wait 30 days before I can take anymore out again. That’s not the way it is in an IRA, you can take out money from your IRA several times a day if you want to, but if but you can go. But with a TSP, it’s once every 30 days. Well, what happens if you take money out, you spend it, then an emergency happens and you need money from your TSP and.

And then you just they say, TSP will say, I’m sorry, that’s the rule, you have to wait another 30 days. Well, that that’s no good. It’s your money. You want to be able to control it the way you want to, not the way someone else is forcing you to. So, again, that’s just another rule that if someone has dealt with the TSP over and over and over again, they’ll know how to work around and how to make it work.

So again, that’s why it’s kept going between. It’s kind of the difference between a general doctor and a specialist. Yeah, I go to the general doctor because my foot hurts and they take an X-ray and say they say, oh, well, you need to go see the specialist because it’s broken and you need Cassie.

And we don’t do that at. Right. So it’s the same situation they’ll be able to answer general questions for the TSP and they might be able to help rollover money into a traditional IRA, but they’re not going to understand that maybe we need to leave some of that money in the TSP for certain reasons. Right, maybe to have an emergency fund. In addition to the IRA, because the IRA is going to be your income. But then we want some some additional emergency fund money right over here.

Exactly. And. And, you know, that can grow or whatever the case is, and so you’ve got to you’ve got to talk with somebody who understands both sides of the house. So that way they can really guide you to where you need to go and what your goals are for retirement and be able to help you out there. Yep.

So please go to Fenobabble, Fednobabble.com and Cassie’s going to prepare one of those reports and we’re going to have one of our advisors and the trusted network reach out to you and explain it all to you and answer all of your questions, all the all the questions that we ask on these shows. You should be able to do what you you are able to turn around and ask them and get answers. Please get answers for yourself. Any last words of wisdom?

Cassie. Thank you, Kevin, take action, get answers for yourself, go be proactive. There you go. Good. Thanks, Cassie. Thanks, everyone and take care.

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