#44 – Pension Delay, Earnings Test, Double Taxes

Pension delay, Earnings Test and Double Taxes 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 as they answer questions from the Fed Pilot workshops and webinars or from questions submitted by you at Fednobabble.com.

OK. Hey, Cassie, we’ve got more questions from the from the workshops, and these are good ones. Are you ready? Here’s the first one. How long after I retire?

Well, I. Will it be before I receive a pension check? How long is it now? Cassie, especially with coronavirus. Right. Because there have been some delays. So how long is it taking people to get their pension check?

Well, it depends big holes. But one of the biggest factors is your retirement package.

Did you turn in a healthy retirement package when you retired?

Are you saying you can turn in a sick one? Well, yes. Yes. And the OPM doctors, they check it up and they say, no, this is it, right? It’s got a cold.

It’s got to go back and they quarantine it. That’s right. It’s got coronavirus right now.

But there are so many things like on the retirement package, for instance, for divorced employees, folks that owe their former spouse a part of their pension or a part of their spousal benefits if they’ve never sent in a divorce decree and then they finally send it in with their retirement package, that can delay the process because that goes into separate file than the regular, you know, straightforward ones. Are you retiring under MRA+10 scenario where you have a reduced pension amount?

How do you have any deposits or deposits that are owed or, you know, are you coming from OWCP and are now collecting or trying to collect your pension? There are so many different factors that I simply don’t know what this person that I can’t say that it’s going to be six months or nine months. What I can tell you is that it can take anywhere from three to 12 months to receive a full pension check. Typically, you receive your Annual leave payout when you separate from service within two weeks to 30 days.

If you’ve got a really great H.R. department that you can receive it with your final paycheck. But as far as your pension is concerned, you can receive what they call intermittent or interim internal check. Yeah, yeah.

Which is just a portion of what your full pension check should be. And that could be anywhere from 30 percent to 60 percent of your full pension amount. And you can receive that for a few months before you start actually receiving the full pension check. So are you talking about the interim check here or are we talking about the full pension right now?

Because there are those two checks. So if you’re and and I think that’s a lot what people don’t understand is how long will I get my check?

Well, do you mean your partial check, which is your interim check or the full check? Wait, there’s a difference. Yeah, there is. And and what I tell people in the workshops is that it could take up to a full year.

So just expect a full year and if it’s before that, be pleasantly surprised. But some people think, well, you know, if there are issues, then if I turn it in earlier, then all those issues will be cut and I’ll get my check, my full check earlier. Right. Well, what people don’t understand. Yeah, people don’t understand that they that H.R. doesn’t even send in your paperwork to OPM until you’ve already retired. You have to walk out the door and then they send it to OPM.

So you could you could turn it in a year early. Some agencies will let you. But let’s let’s pretend you put it in a year early. It’s not going to OPM any faster than the person who turned it in the day that they retire. So. Right. That’s a yeah. That’s it’s a good question.

One that you need to I don’t know that you can ever really know until it actually happens. But you’re right, the cleaner, the retirement paperwork that goes in, the faster you’re going to get your full pension check. Now, Cassie, you’ve seen a lot of retirement packets. You’ve seen a lot of retirement applications filled out. How many are are clean?

Zero. Let that sink in, everyone.

I have not run the run across any retirement application that has been completely clean as far as the information that’s on it or what have you, because there’s so many different pieces that people don’t realize that there’s additional forms that you have to include as well with your retirement application. If you’re married, you’ve got to have your marriage certificate. And if you’ve had any military service, you need to 14. An SF-50 is always good to include with your retirement package, but it’s not necessary.

If you’ve done paperwork for your divorce decree, then you simply don’t need it when you are turning in your application. There’s also I’m trying to think what the older stuff, the one for the FEGLI insurance I can’t think about right now.

I think it’s the 2023 where, you know, the FEGLI insurance questionnaire. You’ve got to figure out what elections you’re going to be meeting in and determining that and including that with your retirement application package. And I think there’s a lot of work that can be done with employees. You know, years before retirement, if you have had any military service, you know, make a deposit if you can. If you’re retired, find out a retired military, find out if it’s worth it or advantageous for your financial situation to make a military deposit.

If you have any other deposits that are owed on your service, find out and make those, you know, make those deposits or redeposits. So that way you’re not trying to figure it out at retirement.

Right. If you do a there is a place where you can sign in your divorce decree. If you owe your former spouse any part of your pension or portion of your surviving spouse benefit, you can fill it in and turn it in years before retirement. So that way, OPM already has done that. Their pre work where they can say, OK, this is what it is for this employee at retirement, and then they’ll just simply wait for your retirement package to come in.

Yeah. So there’s a number of different things that I think employees just simply are unaware of that they can do prior to retirement. So that way they at retirement, they don’t have to worry about these things.

I think the numbers zero, though, is is quite telling that that no one really turns in paperwork, application, paperwork that’s clean, that’s one hundred percent clean.

And it would make sense because if it does go in clean, then you’re going to get that interim check faster.

So it’s kind of important and opens faster as well.

Oh, I’m sorry. Full pension check your full pension check faster. And so that’s really another another piece of this whole thing. So, again, if you go to Fednobabble.com and sign up, we will put you in touch with a financial professional and our trusted network. And they and Cassie can go over that retirement paperwork and check it out. That’s right. And make sure that it’s that it’s clean.

Yeah. I believe just about everybody in our network does send those in for me to be able to scrub and take a look at prior to retirement. And I give them a full checklist of what is needed that needs to be correct. What additional paperwork needs to be included in there? What is it that the employee is trying to do based on their answers? And that way they can take it back to the employee and really help them with that situation and say, hey, here’s here’s what we need to do to make sure this is good to go.

So, yeah, and and really, it’s all of this that we offer is no cost, no obligation, no sales pitch, all that we just want to kick start you and get you in the right spot, because that’s really, really important for the rest of your life.

You got to make sure you do that right. So I just thought I’d add that in there. OK, next question. I have an LLC, no W2 or ten ninety nine. Does that count against the SRS earnings test? Cassie.

Yes. Any self-employed income still counts against the earnings test. How that counts against your earnings test, I’m not exactly sure you’ll have to look at the questionnaire, but I do know that any earned income, whether it’s self-employed or employed. You’re working for somebody else does count against that now. OK, I’m going to get into an area that I am not one hundred percent sure about. So just as a disclaimer so that everyone knows, not one hundred percent sure.

However, I have my own LLC for Fed Pilot and Cassie. You have yours for Fed Pilot.

So it there are two ways to pay yourself basically through an LLC. And really what we’re trying to do in this context is trying to be able to retire and work and still not have the penalty against the special retirement supplement or Social Security. So how can we work and get those at the same time?

Well, if you have an LLC, I think and this is where I’m not 100 percent sure, but I think you have to pay yourself at it.

I mean, if you’re if you’re going to pay yourself something, if you’re going to take money, somehow, it has to be through either a W-2 because you become a an employee of that company or through what has a few different names, but also owner draw, which is the interest really you could call the interest of the company or owner dividends? You might say so, but yeah. So that piece that piece is not does not go against the earnings test.

So that isn’t touched. But if you pay yourself a salary W-2, that would so I don’t know that you can have an LLC and only do the dividends and owner draws. I think you have to do W-2 in there. Again, I’d check on that, but I’m almost positive it’s that way.

Either way, if you have an LLC, you typically have a what is a PNL?

I forget what it stands for.

Profit & Loss?

Yes. And so you’re still using that for other tax purposes and things like that. And you know, all of that really talk to a tax professional. They’re going to be able to answer how you should do your LLC, because I know it’s different also for different places and different kinds of LLC. Right. A contractor type of LLC is going to. Right. We got a Farm Service LLC or this.

And so it depends on what type of business it is and how that is going to work because there’s different deductions for each type of business. Yep. I would just suggest this talk to a tax professional. But the bottom line is that some sort of earnings will have to get reported for yourself. Employment, what those what those earnings are is very different for different types of businesses and how. Right lot. Well, those in play, depending on how you pay yourself, whether you’re taking those deductions or pay yourself a paycheck via W-2.

But that’s why I really strongly encourage you to talk to a tax professional, because there are also deductions that you can take out prior to paying yourself and that might be able to help you get around the earnings test for the SRS. So that way you’re properly setting yourself up to be under that amount and still be able to receive that full benefit. So, yeah, it’s a really tough answer. You can get them to help you out.

You like like you said, you could bring in money that isn’t counted against the SRS or Social Security, really the earnings test. And what was the other point? I don’t remember what the other one was, but anyways, you could all do it legally. I think that’s that’s the main point. Oh, the deductions you can take deductions that benefit you, but at the same time benefit the business. But again, it’s all legal. If you if you consult a tax professional, you can do it legally and be able to do the it not worry about the earnings test or have it not hurt you as much.

So, again, there are good ways to do that. You just got to be really careful.

OK, next one. We only have five minutes on this one. I think we can do this. How do I avoid paying double taxes on my current TSP loan?

Oh, you can’t. Well. So this is what I heard Cassie I’m so I’ve heard two things to tell you the truth, I’ve heard you can’t, by the way and I’ll just say this for all intents and purposes, when you take out a loan from the TSP, you are taxed twice. All right. We’re not going to get into. We don’t have the time on this, but maybe on another one soon. We’ll we’ll go into how that happens and why that happens.

But any time someone takes out a loan from the TSP, they are taxed twice. So if you’re in a twenty to twenty five percent tax bracket, 50 percent of the money that you took out as a loan is now gone or will eventually be gone in taxes. So can you avoid it?

I think if you take really, really, really good, if you keep all the paperwork and I was going to say take good notes, but that’s not quite right. But you know what I mean on that. Right?

And go to a tax professional, they may be able to do your taxes in such a way that it isn’t taken out twice, but almost no one does that.

I mean, really, I haven’t met one person who has ever done that and they just take the the double hit. So if you have ever taken out a loan from the TSP, I would highly, highly, highly suggest you talk to a tax professional to say, OK, I didn’t realize this, how do I avoid it and then start working on it to date ASAP?

Yes, don’t delay that. That’s going to be a critical one. Right.

So I don’t think I have any more to add to that Kevin the so good.

That was good though that it’s but it’s a big thing that a lot of people that almost no one knows about, almost no federal employee understands they’re going to be hit taxed, are taxed twice from their TSP loan.

And these are these are the kind of things and actually we’ve got a couple minutes to tell a quick story. There was one of the advisors and a trusted network. He and I were going back and forth and he said, Kevin guess what happened? He said you were doing a workshop. You talked about this because we talk about this real briefly in the workshop just to warn people, he said. Then I met with one of the people who were at the workshop and he was a little bit upset because right like the week before the workshop, he had looked at this and said, well, I can either pay three point nine percent for a new truck through financing through the through the dealership.

Or I can do one point, whatever it is or whatever. I don’t know what it is with the TSP. Well, that makes more sense. And he went and did that and he said, I completely screwed up here. And I was like, yeah, you did. This is why it’s such an important why it’s so important to talk with finance professionals before you retire well before.

So you can so you can avoid mistakes like this because that kind of thing and there are other things like this can happen throughout your whole employment. If you can avoid those things early, you’re not going to be hit with them later on. So if you’re working with a financial professional early, you can set yourself up. If you do it within the last five years, can you help with that’s still good.

But the earlier you can do this, the better off you’re going to be. Any thoughts about that, Cassie?

Yeah, and if you’re curious, you don’t have a financial professional in your area that knows about the federal benefits or anything else, and you want to make sure that you get a good one, that’s going to help you really distill down all of these different factors that go into planning for your retirement. Please go to Fednobabble.com. Let us get you in touch with somebody from our trusted network, a financial professional.

I shouldn’t say just anybody, but they really help you put together these different pieces and make sure that you’re you’re looking at the bigger picture and, you know, helping you to take action when action is needed and not use of the way you should be doing something.

Right.

We see that all the time and they’re going to help you with that retirement package. So, you know, they they will also prepare a benefits report for you to make sure that you know exactly what you’re going to be starting with. So that way you can make those different plans for what your goals are in life, in employment, in retirement, whatever that looks like for you financially. They’re going to be with you every step of the way. And I’m just so great for the team that we have in place now.

Just so you know, we’re only giving your information to that one person, too. We don’t get into every. Nope, we’re not giving it to to the whole team that we have in the in the network, we’re simply giving it to one financial adviser who is closest to you to get you hooked up and and get you coordinated with that person because they’re are going to be able to help you in that situation. So they got to Fednobabble.com and take action.

And if you would please like subscribe, follow wherever you’re watching this, listening to it, do that and share with your coworkers because they need to learn this as well. It’s important that they do. OK. Thanks, Cassie See you next time, everyone. With some more questions, we’ll come up with.

See you then.

To get Cassie’s comprehensive report on your federal retirement benefits at no cost, no obligation and no sales pitch. Go to Fednobabble.com while you’re there. Submit a question for them to answer on the show.