What is the Windfall Elimination Provision?

If you receive a Federal pension and are also eligible for Social Security benefits based on your own employment record, a different formula may be used to compute your Social Security benefit. This formula will result in a lower benefit. The Windfall Elimination Provision affects workers who reach age 62 or become disabled after 1985 and are first eligible after 1985 for a Federal pension. The Windfall Elimination Provision does not apply if:

◦    You were eligible to retire before January 1, 1986; or,

◦    You were first employed by the government after December 31, 1983; or,

◦    You have 30 or more years of substantial earnings under Social Security.

Can I estimate the amount of the Windfall Elimination Provision reduction?

At your request, using the form SSA-7004, the Social Security Administration will send you a Personal Earnings and Benefits Statement (PEBES) that will list your earnings from employment covered by Social Security and provide a Social Security benefit estimate assuming retirement at alternative ages, 62, 65, and 70. You should contact your local Social Security office to determine the effect of the Government Pension Offset and the Windfall Elimination Provision on your Social Security benefits.

Must the funds in a 529 plan be used for tuition only, or can they be used for room and board expenses?

Answer:

It depends on the state that sponsors the 529 plan, and whether you're talking about a prepaid tuition plan or a college savings plan. Under federal law, room and board costs are "qualified education expenses." But states aren't required to follow federal rules, and prepaid tuition plans typically won't allow 529 funds to be used for room and board expenses. Since most college savings plans follow federal rules, however, funds in a college savings plan can generally be used to pay for these costs as long as the student is enrolled in school on at least a half-time basis.

Room and board costs for students living on-campus are limited to the actual amount charged by the school or to the amount most residents are charged, whichever is higher. Room and board costs for students living off-campus, including students living with their parents, are limited to the amount the school decides is reasonable. Each state's plan will spell out the guidelines that govern room and board expenses and what procedures to follow when requesting a withdrawal.

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.

Introducing TSP Advisory Group

Introducing TSP Advisory Group, a subsidiary of Gartenhaus Financial.  Given our location in the Washington DC Metro area, as well as the number of current and retired federal employees whom are existing clients, we are launching TSP Advisory to help these employees understand their benefits.  From topics such as how to invest their TSP account to more advanced discussions on pension maximization, our staff has been trained to help educate on the myriad of federal benefits.  Both Bryan Beamer and Howard Perlroth have the ChFEBC (Chartered Federal Employee Benefits Consultant) designation.

Here are just a few examples on how we can help.  Federal workers under the Civil Service Retirement System (CSRS) are able to take up to 10% of their total federal earnings and place it into a Roth IRA.  While some restrictions apply, income and investment amounts are not one of them.  Most CSRS employees have no idea this is an option.  We can help!

Another area is with life insurance.  Life insurance premiums for federal employees are determined in age bands.  In younger bands, it's cost effective to stay with the government insurance program.  However, employees in age bands 40 – 44 to 55 – 59 might reduce premiums for similar coverage outside FEGLI (Federal Employee Group Life Insurance)?  Premiums increase 1000% from age 39 to age 60!  Outside insurance availability assumes insurability.  We have calculators that will analyze your specific situation to determine a recommended course of action.

We imagine many of our non-federal clients have friends, neighbors, even relatives who work for the federal government.  The benefits available to them are very complex, and it’s our experience many don’t take full advantage as a result.  TSP Advisory Group is dedicated to providing the very best consultative services for federal government employees, active and retired.  If you know of someone who might benefit from our knowledge, they may contact us for a no obligation consultation.

Stretch IRA

The term "stretch IRA" has become a popular way to refer to an IRA (either traditional or Roth) with provisions that make it easier to "stretch out" the time that funds can stay in your IRA after your death, even over several generations. It's not a special IRA, and

there's nothing dramatic about this "stretch" language.  Any IRA can include stretch provisions, but not all do.

 Why is "stretching" important?

Earnings in an IRA grow tax deferred. Over time, this tax-deferred growth can help you accumulate significant retirement funds. If you're able to support

yourself in retirement without the need to tap into your IRA, you may want to continue this tax-deferred growth for as long as possible. In fact, you may want

your heirs to benefit--to the greatest extent possible--from this tax-deferred growth as well. But funds can't stay in your IRA forever. Required

minimum distribution (RMD) rules will apply after your death (for traditional IRAs, minimum distributions are also required during your lifetime after you reach age

70ó). The goal of a stretch IRA is to make sure your beneficiary can take distributions over the maximum period the RMD rules allow. You'll want to check your

IRA custodial or trust agreement carefully to make sure that it contains the following important stretch provisions.

Key stretch provision #1

The RMD rules let your beneficiary take distributions from an inherited IRA over a fixed period of time, based on your beneficiary's life expectancy. For example, if your beneficiary is age 20 in the year following your death, he or she can take payments

over 63 additional years (special rules apply to spousal beneficiaries). As you can see, this rule can keep your IRA funds growing tax-deferred for a very long time. But even

though the RMD rules allow your beneficiary to "stretch out" payments over his or her life expectancy, your particular IRA may not. For example, your IRA

might require your beneficiary to take a lump-sum payment, or receive payments within five years after your death. Make sure your IRA contract lets your beneficiary take payments over his or her life expectancy.

Key stretch provision #2

But what happens if your beneficiary elects to take distributions over his or her life expectancy but dies a few years later, with funds still in the inherited IRA?

This is where the IRA language becomes crucial. If, as is commonly the case, the IRA language doesn't address what happens when your beneficiary dies, then the IRA balance is typically paid to your beneficiary's estate. However, IRA providers are increasingly allowing an original beneficiary to name a successor beneficiary. In this case, if your original beneficiary dies, the successor beneficiary "steps into the shoes" of your original beneficiary and can continue to take RMDs over the original beneficiary's remaining distribution schedule.

What if your IRA doesn't stretch?

You can always transfer your funds to an IRA that contains the desired stretch language. In addition, upon your death, your beneficiary can transfer the

IRA funds (in your name) directly to another IRA that has the appropriate language.

And if your spouse is your beneficiary, he or she can also roll over the IRA assets to his or her own IRA, or elect to treat your IRA as his or her own (if your spouse is your sole beneficiary). Because your spouse becomes the owner of your IRA funds, rather

than a beneficiary, your spouse won't have to start taking distributions until he or she reaches age 70ó. And your spouse can name a new beneficiary to continue receiving payments after your spouse dies.

The goal of a stretch IRA is to make sure your beneficiary can take distributions over the maximum period the RMD rules allow.

FEGLI Premiums

Our firm is dedicated to providing the very best consultative services for federal government employees, active and retired.  As Chartered Federal Employee Benefit Consultants, we are familiar with the unique challenges facing government workers. 

There are several areas regarding benefits where many employees might be able to make changes to their advantage.  One of them is FEGLI coverage.  Did you realize that those in age bands 40 – 44 to 55 – 59 might reduce premiums for similar coverage outside FEGLI (Federal Employee Group Life Insurance)?  Premiums increase 1000% from age 39 to age 60!  Outside insurance availability assumes insurability. 

We have calculators that will analyze your specific situation to determine a recommended course of action.  To learn more, contact us for a no obligation initial consultation.