Questions & Answers

Q&A

EMPLOYMENT

THE FOLLOWING QUESTIONS

& ANSWERS were compiled by NARFE’s Federal Benefits Institute experts. NARFE does not provide legal, financial planning or tax advice or assistance.

LEAVE AND EARNINGS STATEMENT

QI began my federal career recently, and I receive pay statements from my agency each pay period. Should I be keeping all of these for the next 30 years, or should I purge these each year after I’ve confirmed that I’ve been paid properly?

ACongratulations to you for reviewing your biweekly Leave and Earnings Statements to be sure that they accurately reflect your salary and proper withholdings. If you don’t want to keep all of your statements, at least consider keeping the following: • First statement received at the beginning of your appointment. • Salary changes. • Status of military deposit payment information. • Hours worked (if work schedule is less than full time). • Statements for the last five years before separation from federal service. • When changing payroll offices or transferring to a new agency, keep the last statement from your old payroll office and the first statement from your new payroll office.

HIGH-3 AVERAGE SALARY

QAfter a long break in federal service, I recently returned to a federal position with a modest salary. Although I plan to continue this job until I’m old enough to qualify for an immediate retirement, I don’t expect to reach the salary level that I previously had when I was a federal employee years ago. How will my current salary affect the high-3 average salary that the Office of Personnel Management (OPM) uses to calculate my annuity?

ABy definition, the “high-3 average pay” is the largest annual rate resulting from averaging an employee’s rates of basic pay over any period of three consecutive years of creditable civilian service, with each rate weighted by the length of time it was in effect. When OPM computes your retirement benefit, it will identify the three years of consecutive creditable federal civilian service where your basic salary rates were the highest. When the agency looks at your salary history, it ignores breaks in service by squeezing your entire federal career together (from beginning to end), as if you had no breaks in federal service, and then searches for the highest three consecutive years of basic salary earned while employed. In some cases, like yours, the high-3 average salary may not be the last three years but another three-year period that produces a higher average.

Now that you have returned to federal service, I’d recommend that you ask your agency’s retirement office to prepare a retirement estimate report, which will show the correct high-3 average salary.

You can find additional details about how OPM computes high-3 average salaries in chapter 50 of the Civil Service Retirement System (CSRS) / Federal Employees Retirement System (FERS) Handbook: www. opm.gov/retirement-services/ publications-forms/csrsfershandbook/c050.pdf.

BENEFICIARY FORMS

QIs it possible for me to cancel the prior designations I’ve made in the past on beneficiary forms?

AYes, you can file a new beneficiary form to cancel any prior designations that you previously made. There are examples on each of the beneficiary forms listed below that show you how to do this.

If you cancel a prior designation without adding a new one, then upon your death, the benefit would be paid out according to the standard federal order of precedence, which is also explained on each of the following forms. It is very important to keep your beneficiary designations up to date before and after you have retired. • SF-2808 - “Designation of

Beneficiary for CSRS” www. opm.gov/forms/pdf_fill/ sf2808.pdf. • SF-3102 - “Designation of

Beneficiary for FERS” www. opm.gov/forms/pdf_fill/ sf3102.pdf. • SF-1152 - “Designation of Beneficiary for Unpaid

Compensation of Deceased

Civilian Employee” (employees only) www.opm. gov/forms/pdf_fill/sf1152.pdf. • SF-2823 - “Designation of Beneficiary for Federal

Employees Group Life

Insurance” www.opm.gov/ forms/pdf_fill/sf2823.pdf. • TSP-3 - “Designation of

Beneficiary for Thrift

Savings Plan” www.tsp.gov/

PDF/formspubs/tsp-3.pdf

RETIREMENT

GOVERNMENT SHUTDOWNS AND RETIREMENT INCOME

QDoes a lapse in funding typically affect payments from sources of retirement income, such as Social Security, the Thrift Savings Plan (TSP), CSRS or FERS?

ANo. When Congress fails to appropriate funds or approve a budget that enables the federal government to fully operate, the budgets that allow the Social Security Administration, the Federal Retirement Thrift Investment Board (which administers the TSP) and OPM (which administers CSRS and FERS) to process retirements and administer payments are not affected by typical government shutdowns. Individuals who have been receiving payments from these sources prior to a shutdown are not affected.

Individuals who applied for Social Security during a shutdown were not affected in the past. However, individuals who applied for retirement under CSRS or FERS during a shutdown may have experienced a delay in the processing of their retirements from OPM; this would typically be caused by the employees’ agencies being unable to forward the retirement application package to OPM before the shutdown. OPM cannot process a retirement until an employee’s agency forwards his or her retirement application package. But once a shutdown ends and OPM receives a complete retirement application package, it processes the retirement and makes the necessary retirement payments retroactive to the effective date on which the employee retired.

If someone separated from federal service for retirement during the shutdown, he or she may have trouble making withdrawals from the TSP. This is because the TSP typically receives a separation code in an electronic communication from the agency payroll office when an employee separates from federal service. But if the agency shutdown occurred before that separation information was sent to the TSP, then the TSP could not allow the employee to make any post-separation withdrawals until the agency reopened and sent the code.

PENALTY TAX FOR TSP WITHDRAWALS

QIf I separate from federal service at age 56, will I be subject to a penalty tax if I take a withdrawal from the taxable portion of my TSP before age 59½?

AYou are correct that your pretax TSP distributions are subject to income tax and may be subject to an additional tax. Generally, the amounts withdrawn before reaching age 59½ are called

early distributions. Individuals must pay an additional 10% early withdrawal tax unless an exception applies. In your case, retirement at age 56 meets one of the exceptions, which allows a federal employee who separates in the year they reach age 55 or later to be exempt from the 10% additional tax. Furthermore, retired public safety officers (such as federal law enforcement officers and firefighters) are also exempt if they retire in the year they turn age 50. Remember that this exemption only applies to distributions that you take directly from the TSP. If you transfer any portion of your traditional TSP to a traditional IRA and attempt to take distributions before age 59½, the distribution may be subject to the 10% additional tax. More details and other exceptions can be found in the TSP Tax Notice (TSP-536) at www.tsp.gov/PDF/formspubs/ tsp-536.pdf.

CSRS OFFSET

QI retired under the CSRS Offset retirement plan at age 58. When should I expect OPM to reduce (offset) my annuity?

AThe offset is applied when the basic requirements for Social Security are met (usually at age 62) even if you decide not to apply for Social Security at that time. OPM will compute the offset based on the amount of Social Security potentially payable at age 62 and not the larger amount that you might claim at a later age. If you are not entitled to Social Security at age 62, there is no offset until or unless you later become entitled to Social Security. If you have worked and paid the FICA tax for at least 10 years, you are generally entitled to Social Security. Learn more about your Social Security benefit by creating your personal my Social Security account at www.ssa.gov, where you may request an estimate of your future benefits.

The amount of the offset is computed by Social Security upon request from OPM and is the lesser of: 1. The amount of the Social

Security benefit attributable to your federal service covered under the CSRS Offset provisions; or 2.The amount obtained by multiplying the total years of offset service divided by 40, multiplied by the

Social Security benefit you are entitled to receive. For example, if the total years of offset service are 11 (rounded to the nearest whole year), then 11/40 or .275 would be multiplied by the Social

Security benefit payable at age 62, let’s say $2,000, for an offset of $550 ($2,000 x .275) applied to your CSRS benefit at age 62.

For more details about CSRS Offset, view the webinar archived at the NARFE Federal Benefits Institute, recorded in April 2021, titled, “CSRS Offset: The Best of Both Worlds or a Nightmare?” You can find it at www.narfe.org.

STATE TAXES

QI recently retired, and I’ve noticed that OPM did not withhold any deductions from my annuity for state income tax. What is the best method for me to contact OPM to have the proper amount of state tax withheld from my monthly annuity payment?

AIf you have signed up to use OPM Services Online, you may log in to your account and specify the dollar amount of state tax you want withheld from your monthly annuity payments. The withholding must be in whole dollars, and the minimum amount cannot be less than $5.

At www.servicesonline. opm.gov/ you can log in to your OPM online account to start, change or stop the withholding of state taxes from your annuity payment. You’ll receive a welcome letter in the mail from OPM Retirement Services when it approves your application for retirement to start dispersing your recurring monthly payment. The letter includes your claim number, which will begin with the letters CSA or CSF. Within a few days of receiving your welcome letter, you’ll also get a letter with a temporary password to access OPM Retirement Services Online. You’ll have 30 days to sign in to your online account with your temporary password before it expires. Once you’re signed in, you’ll be prompted to create a new password and create security questions and answers.

If your temporary password expires before you create your account, contact OPM and request a new one so you can start using its online services.

If you don’t use the internet or you don’t have online access to your account with OPM, you can call or write OPM to start, change or stop the withholdings from your annuity payment. If writing to OPM, be sure that your letter includes your CSA or CSF number.

Write to OPM at:

OPM

Retirement Operation Center

Tax Withholdings

PO Box 45

Boyers, PA 16017-0045

Call OPM at: 1-888-767-6738

TTY: 711

Hours: Monday through Friday, 7:40 a.m. to 5:00 p.m. ET.

OPM’s busiest time is between 10:30 a.m. and 1:30 p.m. ET.

REQUIRED MINIMUM DISTRIBUTION

QCan I take all my required minimum distributions from my IRA and leave funds in the TSP?

AIf you have multiple IRAs (including traditional IRAs, SIMPLE IRAs and SEP IRAs), the IRS says you need to calculate the RMD separately for each IRA, but you may take the RMD from as few as one IRA. Employer plans are a different story. If you have multiple employer-based retirement plans, such as the TSP and a 401(k), you must calculate and take a separate RMD from each employer plan you hold. You cannot take an RMD from an IRA to satisfy an employer-based retirement plan RMD, or vice versa.

To obtain an answer to a federal benefits question, NARFE members should call 800-456-8410 and select option 2 for the Federal Benefits Institute; send the question by postal mail to NARFE Headquarters, ATTN: Federal Benefits; or submit it by email to fedbenefits@narfe.org.

NARFE AT YOUR SERVICE

At NARFE Headquarters, experts are available to answer questions and assist in helping with a variety of benefit matters.

CALL NARFE AT 800-456-8410,

OPTION 2

FEDERAL RETIREMENT BOOTCAMP

703-691-9200 keenpocock.com info@keenpocock.com KEY TOPICS COVERED:

Proper Asset Allocation

Tax-efficient investing & withdrawal strategies

Social Security claiming strategies

Roth conversion strategies

Stealth taxes

Beneficiary designations

FEHB and FEGLI in retirement

Retirement income projections Call TODAY for a complimentary meeting

Advisory services offered through Strategic Blueprint, LLC. Securities offered through The Strategic Financial Alliance, Inc. (SFA), member FINRA/SIPC. Strategic Blueprint and SFA are affiliated through common ownership but otherwise unaffiliated with Keen & Pocock.