Tax Shelters/Thrift Savings Plan

Tax Shelters

Tax shelters what are they and how do they work

All tax shelters have a 10% withdrawal penalty before age 59 1/2 unless you use a certain tax code before then.

Ask Gary about 72T and get with accountant is recommended.


Qualified Tax shelters

IRA’S- Individual retirement accounts

TSPs, 401Ks, 403Bs, Keoghs and any plan that deposits are maybe with tax advantage deposits before hand. Tsp allows tax free deposit before it goes into account.

Fully 100% taxable when withdrawn that is why most folks pull money monthly.

RMD- Must take money out by 70 1/2 or subject to 50% Tax of account value.


Roth IRA’s

The newest and the best. You may put taxable income away into savings and investment vehicles and it can return tax deferred growth and, if taken out at retirement age past 59 1/2, completely tax free. Limits on what you put into each year – 6000.00 per year if under age 50 and 6500.00 if age 50 and above.


Thrift Savings Plan (TSP) -The TSP is the Government form of 401K or 403B

Employee’s can set aside pre-taxed money and defer payment of taxes until retirement

How much can I contribute to the TSP ?

$17,000.00 per year is the Maximum Per Year

If age 50 or Older You may contribute an additional $5,500.00 per year for Catch UP Contributions

How much is the matching?

CSRS employees receive no matching from the government, but taxes savings are great advantage for their deposits.

FERS employees receive matching on their contributions based on the following formula;

1% – Free From the Government or USPS

First 3% – Dollar for Dollar Matching

Next 2% – 50 cents on the Dollar Matching

TSP Funds – 6 Funds

G Fund – Invested in Government Bonds

The down side, however, is the performance. In December 31,2012, the G fund paid average of 3.61% past 10 years. This is the only fund that is guaranteed and back by Government securities.

F Fund – Slightly better than the G Fund

This Fund is invested in High Grade Bonds that are Not Government Bonds. They are still safe , but with better returns than the G Fund. 10 Year to date the fund has paid 5.25%

C FUND – Common Stock Fund and is Invested in the S&P 500.

This is the fund that lost 36.99% in 2008 when a lot of employees lost a lot of money

Last 12 Months, the fund has returned 16.07%

However, 10 year average is 7.12%

S FUND – Invested in Small Cap Stocks not in the S&P 500

10 year return, S FUND is 10.79%

However , the 12 month average is 18.57%

I FUND – Invested in International Stocks

Last 12 Months 18.62%

10 year average return has been 8.39%

L Fund Lifestyle

The government recently reviewed how employees were utilizing the TSP and saw that too many of them had their money in the G Fund

Knowing the Average Federal Employee is not an Investment Manager and does not know how to invest money, the government then created the Lifestyle Funds.  The TSP board went to Wall Street and Banking Professionals and Developed these Funds. One nice feature of the

L FUND is that they Re-allocate every quarter the closer employee gets to retirement, the investment gets a little safer each quarter This fund makes it easier and really puts employee money on AUTO PILOT.

The Funds are named with the employees closest planned retirement year in mind

How L FUND is Invested

Retirement Year Investments
L G Fund 74% C Fund 12% 11% other
L2020 G Fund 36% C Fund 30% 34% other
L2030 G Fund 22% C Fund 36% 42% other
L2040 G Fund 11% C Fund 40% 49% other




TSP Withdrawal Options

Financial Hardship Withdrawal

An Employee can Withdraw Cash from the TSP only when there is Acceptable Hardship

Documented Negative Cash-Flow – The employee has to fill out a worksheet to document the cash-flow to qualify.Medical ExpensesLegal Costs due to Divorce or SeparationPersonal Property Loss-Home Repairs that are necessary

Special note about taxes:

All funds the employee receives are after taxes have been taken out and if below AGE 59 1/2 an extra 10% tax penalty will apply.

TSP Loans

You may borrow against your TSP funds as long as you have at $1,000.00 in your account

You will charged G Fund Interest Rate

General loans – Available for Any Purpose

Must be repaid within 1 to 5 years

Purchase of a Primary Residence

Must be paid back with 1 to 15 years

Age Based In-Service Withdrawal Prior to Retirement

Very few people know about this fantastic option.

If an active employee is 59.5-years of age or older CSRS-FERS) they can rollover their TSP to another qualified plan with no tax consequences or penalties.

At the time of the transfer, employee may elect some of their TSP funds to go directly into their checking or savings account (TSP75 form is used for this request)

We have met with a lot of employees who were a few thousand from paying off vehicles and other obligations.

Most of them with the personal loans paid off are able to justify retirement much sooner and much easier

FERS Special Note

FERS Employees who are 59 1/2 and older who elect to take advantage of rolling over their TSP to a private IRA or annuity need to know they will still receive full matching on any future contributions the make to the TSP

There are FERS employees that are 59 1/2 or older who still plan to work another few years

Those employees can transfer and still accumulate more funds in their TSP until they retire and then transfer the difference out at that time.

After Retirement

Once you Retire

You can rollover your TSP at any age to a qualified IRA plan

You aren’t taxed on this until you make withdrawals from that IRA.

The form that is used for this TSP-70

What are the Basic TSP Withdrawal Options at Retirement?

Transfer your Vested Account Balance to an Individual Retirement Account (IRA) or Eligible Retirement Plan

Receive your Account Balance in a Lump-Sum Payment

Receive your Account Balance in substantially equal payments over a fixed period of time or in a fixed amount until the account is depleted.

Receive a life annuity based on the amount in your account- This is an annuity THEY KEEP YOUR LUMP SUM and you get only monthly income period. At time of death of retiree spouse still gets monthly income only this is what we call a disinheritance of the family. There is cash refund option to Heirs, but employee and spouse paid less monthly.



An annuity is an insurance product that pays out income, and can be used as part of a retirement strategy. Annuities are a popular choice for investors who want to receive a steady income stream in retirement.

  • Here’s how an annuity works: you make an investment in the annuity, and it then makes payments to you on a future date or series of dates. The income you receive from an annuity can be doled out monthly, quarterly, annually or even in a lump sum payment.
  • The size of your payments are determined by a variety of factors, including the length of your payment period.
  • Annuitize means to “flip the switch” and start taking income from an annuity.

What Happens When You Annuitize TSP?

When you annuitize, you are telling the insurance company to start paying you.

When you make the choice to annuitize, you also decide how the payments should be structured.

For example, you can choose a variety of options including:

Lifetime paymentsLife with period certainJoint and last survivorPeriod certain

If you annuitize, the best option is the one that does whatever you need it to. For example, if you’re only taking care of yourself, the lifetime payment option might be a good choice. If there are other people counting on the income, you’ll want to look into the other options.

This is typically an irrevocable decision – once you annuitize, you can’t go back. This is because the insurance company has to take steps to guarantee you the annuitized payments.