#46 – When Can I?, When Should I, TSP Loans

When can I, When should I, and TSP loans 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.

Hi Cassie, are we ready for some more questions? I think so.

OK, let’s look at the first one.

Well, we go to break now.

I’m ready. I’m good. I’m good. I’m all loosened, loosened, loosen up, loosened. Boy, my grammar today.

All right. So first question. So full retirement for me is my MRA at age fifty seven, correct?

What is the missing piece in that question, what’s the missing piece of that question, Cassie?

What’s your year of birth? There you go.

So I’m going to throw up this right here. This is the minimum retirement age. I know.

Just chart overall and the chart that shows you exactly what your minimum retirement age is based on your birth. So obviously, you guys can see, you know, whenever you your birth, is that your minimum retirement age?

And hopefully you remember your year of birth, that would kind of be important, you know. Now, that’s a minor thing, but maybe maybe not. So can you retire? It’s based on that chart. And it’s and I’ll say for the full for a full retirement. Right. There are other types of retirement that you could change some things, but that is for a full retirement full of retirement and first retirement, because you can be Emori with 10 years of service and get a reduced pension.

And that’s not a full retirement because you can either take an immediate pension or you can postpone it, but you’re getting a you’re getting a reduced benefit and so you’re not getting your full pension amount. So it’s not a full retirement spot.

Needless to say, that is the MRA chart. So at least you’ll know your minimum retirement age. If it’s 57, then obviously you have to be born nineteen seventy and after. So look at the chart and figure out if that’s true for you or not. Right.

And just for the fun of it, I’m going to throw this in like law enforcement, air traffic controller, firefighters, they don’t use that.

So one of the things that I have to be careful of as I do these workshops is to say, OK, this is the chart. This is how you figure out when you can retire or not. And if there aren’t any law enforcement, air traffic controllers, FICA fires what we call special provision on the line, I don’t get into the exceptions. So if these people went back and told their special provision buddies, this is how it works, it would be wrong for someone else.

And so, again, it’s important that you understand what is right for you specifically rather than just, oh, this is the rule because there are exceptions to every thing. And when we talk about this, we’re talking about for most people, General.

So, again, just be careful that you don’t pass this on, that this is how it works for everyone, because it isn’t just simply, OK, question number two, talking about the best time to retire your month a day to maximize the benefit. What are your tips?

Oh, that’s a good one. Yeah, I like this one.

So let’s be talking about the best time to retire to maximize the benefit. What are your tips? So I would say obviously for the day, you always want to for first, you always want to go out on the last day of the month. For CSRS employees, it’s either the last day of the month or the first three days of the following month. And that’s going to maximize when your pension begins to accrue, because as long as you go out, say, April 30th, then you can start accruing that benefit made first.

Right, April 15th.

Your benefit is not going to agree until May 1st.

So it doesn’t matter. Yes. You have that month that you retire, your benefits are going to accrue the first of the following month for first employees, for CSRS employees. As long as you go out within that first three days and you can start accruing that pension right away.

And let me throw and let me throw in one more piece with that, if I could.

Is that, for example, and people do this and I see this all the time, and probably you do, too, I’m assuming that where someone says, all right, I put my in fact, I, I think I remember this exact thing happening when you and your husband came to the workshop years ago, someone said, I’m retiring on April twenty eighth. Well, why April twenty eight. Well, because April twenty eighth is a Friday and it’s the last day of the month.

And I said no, April 30th is the last day of the month. They said, well, it’s a Sunday. And I said, I don’t care.

Still, it’s not the last day of work. It is really the last day. Of the month put even if it’s a Friday, Saturday or holiday Sunday, what does it matter? Put the last day of the month still?

That’s right.

And people think, oh, well, it’s you know, I need to go out the last day of the pay period or I just got that question again after so many different water cooler scenarios on what that retirement date should look like. But realistically, for first employees, it should always be the last day of the month. There are one exception to that rule, and we’re not going to get into that right now. Right. But essentially, overall, just blanket just do the last day of the month and you’ll be all right.

I had last week I had someone to ask in a in one of the Fed Pilot webinars.

They asked, so what I heard what you just said, but H.R. told me that has to be the last day of the pay period. And I said, well, they said that because it’s easiest for them to figure things out. It’s not best for you. It’s easiest for them. That’s why they said that, because you should do it on the last day of the month.

So there you go. All right.

What about the best month, Cassie as far as the best month is concerned?

I mean, that depends on what your what your goals are, how many years and months of service you have. When did you start those different things? If you’re really trying to maximize your Annual leave payout, then at the end of the year is going to be best for you, because that way you can accrue all of that Annual leave and get paid out for it and be before you having to use it. And so you don’t lose your two hundred and eight hours that you accrue during a given year.

And you can you can get paid out for those. So it depends on what are your goals. If you’re not concerned about your Annual leave payout or that check, then you know, it can depend on are you still making deposits or deposits? You know, and do you have a TSP loan that you want to pay off prior to retirement? So that way you’re not having to do that within 90 days. Yeah. Are you going to what are you going to be doing after retirement?

Like, you got to have something to retire to. You hope you don’t have anything to go to, then, you know, you might want to push that out a little bit or plan out a little bit differently for a year or two or a certain month that you say, OK, well, you know, springtime is this month and I get to do some gardening and I want to take a couple of months off and focus on, you know, just being able to enjoy the weather before I do this other thing.

And so that will depend on what your personal goals are for that. And then the same with the year. I think it depends on eligibility and and personal goals. Yeah.

You know, Cassie, you bring up December thirty first. There’s a popular one in and December 31st is a popular one. But I’ve done some calculations to check it. And in some circumstances and in fact, one particular one that I did, just to make sure the person, because of the taxes that they would incur, they would have lost ten thousand dollars just by retiring on December 31st, because in the case that I was looking at, it puts them into a higher tax bracket for the net for that year when they retire because of the extra money that they get.

And so they missed out on ten thousand dollars cash that they could have had had. They planned it differently. And in fact, there are there are some circumstances where you can actually bump yourself up into the next tax bracket two years in a row. So I really think that when someone should retire should be strategic and not just say, hey, I think I should retire. You know, this sounds good. I mean, if you don’t care about money, then that’s fine, really.

If your mental health you just got to get out, then great. But if you are watching your money you want to maximize your money, then it should be a strategic thing.

It should be. And I can’t answer that, though, and I don’t think Kevin can either, because we don’t know the rest of your scenario. Yeah. And what that means for you and what your goals are and what you’re trying to accomplish. I mean, if you could lose ten thousand dollars. Well, you know, are you going to. How are you. Offset that or or how can we strategize that that date differently to where that person can maybe earn five thousand instead of being the opposite?

So we really have to find out what is that going to look like for somebody? And and there’s so many different factors that go into it for what that date looks like, that I think somebody really needs, like you said, be so tragic about it, not just, you know, put it in a hat, pick a couple of dates, put them in Atlanta. Oh, this is the day I’m going to retire. That’s good. Not a good idea.

No. OK, good.

Last question here. If you don’t pay off your TSP loan when you retire, is it added to your income and could it put you into a higher tax bracket? Speaking of the devil there, are there other penalties? So you’ve got a TSP loan outstanding. You’re paying toward it, but then you retire and you haven’t paid it all off. What happens then? Cassie.

So if somebody has a TSP loan that they haven’t paid off and they retire, they have 90 days to pay it off. If they don’t pay it off within those 90 days, then the TSP will report those that balance, whatever that amount is to the IRS as a taxable income.

So could it push you into a higher tax bracket?

You bet.

Absolutely. How good are there other penalties if you’re under 59 and a half? Yes. You will incur an extra 10 percent for that early withdrawal penalty as well on top of the higher tax bracket or whatever other things are possible with that. So it’s very important to think about these things. When you’re looking at retirement, do you have a loan? How much is owed? How are you going to pay it off? Is it important to you to have it paid off or is it going to benefit you?

You know, that’s something that you’re going to need to to talk to a financial planner or a tax adviser about as far as strategizing this TSP loan with the rest of it. I prefer a financial adviser because they typically have experience in tax planning. And even if they’re not a tax preparer, they can at least give you some good insight there. And and look at the bigger financial picture for you, rather than a tax adviser who is just going to look at the tax consequences, whether they’re good or bad.

A financial adviser is going to take in the big picture. If you don’t have one of those, then please let us know. Go to Fednobabble.com and let us know. We’ll hook you up with somebody in our trusted network. And it’s one person where we just give them your contact information. So that way you can ask them these questions. They’re going to prepare a benefits report for you. No cost, no obligation on all of that. So that way they can see where you starting at first and get that get that foundation before they can give you extra advice.

Yes.

And please, I know you have questions about your retirement. Everyone has questions about their retirement. And we we cover pretty much three questions every show, every episode. We don’t cover them all. We have a list of questions out the wazoo to answer.

You can wait around if you want and just wait and watch all these, which is just great. Or you can go get your questions answered and it doesn’t cost you anything. So again, go to Fednobabble.com and just go get your questions answered so you know what you’re doing. And of course, as always, if you would please like subscribe, share, share this with your coworkers, because they need to understand the things that you’re learning just as much as you do.

Thanks for being here.

And we will see you next episode

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