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spencerm6  
#1 Posted : Tuesday, November 08, 2011 1:40:40 AM(UTC)
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I know this topic has been discussed in various posts, but I think we need to consolidate the facts here.

Question:  Can CSRS Voluntary Contribution Program (VCP) participants roll over the funds they contribute immediately and directly into a Roth IRA? Can this effectively transfer 10 percent of lifetime earnings into a Roth?

The answer happily is "yes"!  I feel the need to emphasize this as recent confusion elsewhere on the board. Specifically, I was told by Ed Zurndorfer in the Federal Employees Benefits thread the following:

When a VCP account owner requests a pre-retirement refund of his or her VCP account, OPM will pay all of the account owner's VCP contributions directly to the account owner. OPM will most likely not agree to rollover the contributions to a Roth IRA. The Roth IRA rollover option is for VCP account owners who retire from federal service and who request such a rollover at the time of retirement.   

I appreciate Mr. Zurndorfer's insights typically, but this one is not correct. I am not an expert, however I consulted with a CPA and  OPM has fairly quickly done this for me without fuss, and I have not yet retired.  I think others should not be discouraged by his comment, and one or two others out there who continue to day that say it does not work.  It does, I can assure you.

I would like to hear from other CSRS-VCP participants that have completed this process...all smooth?

See the invisible; Feel the intangible; Achieve the impossible!
crs1  
#2 Posted : Tuesday, November 08, 2011 8:40:51 AM(UTC)
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I agree with spencerm6. Bob Leins (NITP), Tammy Flanagan  (NITP, GovExec.com), and Shilanski (CFP) have the same viewpoint (that doing so is clearly allowable), all of whom I consider authoritative on the subject. My own read of RI 38-125 and RI 38-124 says the rollover to Roth can indeed be accomplished prior to retirement.
 
While I also typically value his insight, I'm not sure where Ed is coming from on this one. Note he is not saying it can't be done; he is saying from what I gather, in his opinion, it is not clear.
The fact that spencerm6 has already done it speaks loudly. I too would like to hear from others having completed the process.crs12011-11-08 18:46:07
The HalfBreed  
#3 Posted : Tuesday, November 08, 2011 2:45:40 PM(UTC)
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I agree with the both of you, with ONE Caveat. The Contributions can be rolled over into a ROTH IRA, however, the Earnings should/must be rolled over into the TSP.

That's the way I understood it, from a firm hired by the Gov't to do retirement seminars. I called Micah Shilanski in Alaska and he verified it. I told him I'd like to purchase his book, but he said his website is getting a makeover, and it will be available there in the near future.

This whole VCP Rollover is applicable to CSRS and CSRS-Offset individuals.
I submitted my RI forms to be given to OPM to determine my lifetime earnings in the gov't, and therefore, the max 10% of that figure I am allowed to fork over for this event. I'll probably do 6-8% tho.


RETIRED 12/19/2012 !!! Good Bye Tension !!! Hello Pension !!!
spencerm6  
#4 Posted : Tuesday, November 08, 2011 3:41:57 PM(UTC)
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HB,  spot on.  I in fact rolled my earnings to the TSP.  That was easy also.  There was not much in earnings as I moved the funds through the VC account within a couple of months.  The only thing that took some time was actually establishing the VC account and getting the transfer instructions with my bank confirmed.  For this reason I'm glad I set up the account six months before and left it unfunded while I looked at things and waited for the IRS rollover income limits to go away.  Believe it or not, I also spoke to a very helpful woman at OPM and confirmed that there is a slight delay as they verify that your deposit has not exceeded the 10% you are allowed.

Did some additional research prior to filing my taxes last year to ensure the rollover was included but that no tax liability resulted. I proceeded immediately as I am not sure they will not change the rollover income rules in 2012 and saw no need to wait.  I will perhaps retire in another two years.

SM
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emkute  
#5 Posted : Tuesday, November 08, 2011 10:36:58 PM(UTC)
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I agree.  Part 3 of RI 38-124 provides the mechanism to do this.  In my case, my VC contributions went directly to a Roth acct at Vanguard and the interest to the TSP.  I did this last year.
The HalfBreed  
#6 Posted : Wednesday, November 09, 2011 1:50:11 AM(UTC)
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spencerm.....

That's one of the issues I was wondering about !

I was under the impression that I had to wait until I was on my way out of the door (12-30-2012) to transfer the money from the VCP to the ROTH IRA.

So, I can do this prior to my retirement, as in next April / May / June 2012 if I plan to go out in Dec. 2012 ???




RETIRED 12/19/2012 !!! Good Bye Tension !!! Hello Pension !!!
spencerm6  
#7 Posted : Wednesday, November 09, 2011 3:25:55 AM(UTC)
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No problem.  Do it whenever you wish.  Of course it is a one time deal, but I wanted to make sure it didn't hit a snag.  Unless you plan to add more money I would suggest doing it now before one of several laws could be changed.  Your VCP account will be closed of course.

Make sure you handle the reporting the right way on your 1040 so you do not get hit with a tax liability.  It is great to see the Roth balance jump so dramatically.  I would say this is the most overlooked CSRS benefit out there.  It is also great to see your tax liability from a taxable investment account drop.

I would be interested to know what percentage of CSRS folks have taken advantage of this unintended benefit.  2010 is really when it became so attractive - maybe not so many of us around anymore.  Perhaps I will start a poll...
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crs1  
#8 Posted : Wednesday, November 09, 2011 10:38:23 AM(UTC)
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The HalfBreed wrote:
I agree with the both of you, with ONE Caveat. The Contributions can be rolled over into a ROTH IRA, however, the Earnings should/must be rolled over into the TSP.

That's the way I understood it, from a firm hired by the Gov't to do retirement seminars. I called Micah Shilanski in Alaska and he verified it.
 
 
Just to be clear, while earnings in the VCP account can be rolled into TSP, they do not have to go there. RI 38-124 allows:
 
1) Direct refund to you with with 20% Federal tax withholding
2) Transfer to Traditional IRA with no tax due (tax deferred)
3) Transfer to Roth IRA with Federal tax due, either 20% withheld or pay when you file
4) Transfer to TSP with no tax due (tax deferred)

crs1  
#9 Posted : Wednesday, November 09, 2011 10:59:28 AM(UTC)
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The HalfBreed wrote:
I submitted my RI forms to be given to OPM to determine my lifetime earnings in the gov't, and therefore, the max 10% of that figure I am allowed to fork over for this event.
 
HalfBreed - You have me curious as to what RI form you submitted to get your 10% limit. I am not aware of such a form. I had to request, through my local payroll office, the equivalent of a Individual Retirement Record, Form SF 2806. What they did not have was on file with OPM. The Washington DC VCP Office, at my request, retrieved the OPM data, compiled both sets of data and performed the calculation. They then sent me a letter confirming that limit.


crs12011-11-09 19:11:31
The HalfBreed  
#10 Posted : Wednesday, November 09, 2011 12:07:18 PM(UTC)
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I submitted SF 2804 (I think that goes to my HR Office, who in turn sends that to OPM to determine my career earnings). From my understanding, the max I can contribute will be 10% of that figure.

I'm in the beginning stages here....

crs1....your post confuses me. are you saying that ANY way you cut it, moving it out of the VCP, the money will be taxed ?

even if the contributions are rolled into a ROTH IRA and the earnings moved into the TSP ?
That's not my understanding. (of course, there is a 5 year or shorter waiting period)



The HalfBreed2011-11-09 20:16:40
RETIRED 12/19/2012 !!! Good Bye Tension !!! Hello Pension !!!
crs1  
#11 Posted : Thursday, November 10, 2011 4:43:27 AM(UTC)
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HalfBreed - The earnings (interest) on your contributions in that VCP account won't escape taxation, although you can defer it. While the contributions are after tax money, the earnings are pre tax.

If you request a refund of or transfer those earnings to a Roth, they will be taxed as income in the year of withdrawal from the VCP account. If you transfer the VCP earnings to a Traditional IRA or TSP, they will be taxed as income when you ultimately withdraw them from the IRA or TSP, i.e., tax deferral.

Note the SF 2804 form opens the VCP account. While I'm not sure what they do nowadays, submittal of that form did not trigger the lifetime earnings determination when I did it. Maybe they will for you. When I submitted my final election form, RI 38-124, I had to prove I had not exceeded the 10% limitation. They require IRR SF 2806 equivalent data to do that, hence the procedure I followed.

The HalfBreed  
#12 Posted : Tuesday, November 15, 2011 6:58:44 AM(UTC)
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crs1 wrote:
Note the SF 2804 form opens the VCP account. While I'm not sure what they do nowadays, submittal of that form did not trigger the lifetime earnings determination when I did it. Maybe they will for you. When I submitted my final election form, RI 38-124, I had to prove I had not exceeded the 10% limitation. They require IRR SF 2806 equivalent data to do that, hence the procedure I followed.


You are correct. The 2804 only opens up the VCP account. (after reading more I found out). My next step would be to submit the RI 38-124 (not sure where to send it, but will figure it out) and get a grasp on the max Lifetime earnings figure. Then, I guess the thing to do is just send in the check, huh?
RETIRED 12/19/2012 !!! Good Bye Tension !!! Hello Pension !!!
crs1  
#13 Posted : Tuesday, November 15, 2011 8:20:24 AM(UTC)
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The HalfBreed wrote:
You are correct. The 2804 only opens up the VCP account. (after reading more I found out). My next step would be to submit the RI 38-124 (not sure where to send it, but will figure it out) and get a grasp on the max Lifetime earnings figure. Then, I guess the thing to do is just send in the check, huh?
 
If you've submitted the SF 2804, you need to wait on a letter from OPM saying your account is opened before you can do anything. Once you receive that letter, you can start contributions - either a one shot deal or over time.
 
The RI 38-124 closes your account and is not the vehicle to get an up-front earnings estimate. It might force one upon account closeout however.  I did not formalize that estimate until account closeout and I had to do what I stated above. I recommend you perform that estimate yourself unless you are trying to nail 10% exactly. Use either 1) the total retirement contributions from your pay stub along with whatever % is normally taken from your gross pay for retirement or 2) Medicare earnings from your latest social security statement (they quit mailing those so use your last statement along with recent earnings)  to estimate your limit.
 
When you finally close your account, you may have to prove you did not exceed the 10% if you have contributed over a certain dollar amount. At that time, you would need to obtain the official SF 2806 info. I wouldn't worry with it until then, unless, like I said, you are trying to contribute exactly 10% at time of account closeout.







crs12011-11-15 18:42:59
AFFINANCE  
#14 Posted : Wednesday, November 16, 2011 12:41:46 AM(UTC)
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I completed the 2804 and sent to OPM through my HR office over 2 months and have not yet heard anything from OPM.  Is that normal or should I be calling OPM to get a status?  If I need to call OPM, do I call the retirements section of OPM.  Thanks.
crs1  
#15 Posted : Wednesday, November 16, 2011 9:53:09 AM(UTC)
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AFFINANCE wrote:
I completed the 2804 and sent to OPM through my HR office over 2 months and have not yet heard anything from OPM.  Is that normal or should I be calling OPM to get a status?  If I need to call OPM, do I call the retirements section of OPM.  Thanks.
 
That seems like a long time to me. Mine took something like 5 weeks, most of which was consumed by my local and regional HR. I recommend you check first with your HR folks to confirm it was sent. I believe I received a letter (about a month after I submitted) from my regional HR telling me they had forwarded to OPM. If you want to contact OPM, there's some contact info here:
 
 
My experience was some time ago and so the wait time may be longer now, I don't really know.

spencerm6  
#16 Posted : Thursday, November 17, 2011 3:51:13 PM(UTC)
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crs1,

I would agree, the delay is more likely to be with the parent agency.  I found OPM to be quite fast with their part of the entire transaction.  I suspect they really don't see many of these - fewer and fewer of CSRS folks, fewer that know about this rollover option, and few of those they are in a position to take advantage of it.

When you run the numbers, and if you leave the added deposit in the Roth for 10+ years, this makes up for the no matching of the TSP I believe.  Especially nice as I believe it was unintended and rewards those who have saved outside funds diligently.

SM
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crs1  
#17 Posted : Saturday, November 19, 2011 8:39:51 AM(UTC)
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spencerm6 wrote:
Did some additional research prior to filing my taxes last year to ensure the rollover was included but that no tax liability resulted.
 
spencerm6,
 
Thanks for the thread (I almost started it myself). We agree on all. I too am not yet retired but am within days of completing the rollover process. The final aspect for me will be to complete documentation for the 2011 IRS filing. Given you have completed tax filing to document the VCP rollover of contributions to Roth and interest to TSP, can you discuss the specifics of what you did to document for the IRS? I have a general idea of what is required but have not yet executed the specifics.
 
Thanks,
crs1 
spencerm6  
#18 Posted : Saturday, November 19, 2011 5:17:26 PM(UTC)
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Sure crs1,

I do not claim to be at tax expert by any means, however I did consult with a CPA prior to filing and handled the VCP-Roth transaction as follows:

1040 - Box 16a  Enter the total amount of the rollover, note 'ROLLOVER'
           Box 16b Enter the total taxable amount of the rollover - $0
 Form 4852 -File two of these 'Substitute for For W-2...and 1099R'  Turbotax will lead you through this.  
            It  will break  down the non-taxable amount
     (your contributions) that are sent to the Roth, and also show the taxable
            amount (earnings) that are not taxed since, in my case, they were sent to the TSP.
            In the Employer's or Payer's name, line 5 I showed "Office of Personnel Management, address
            as on your disbursement statement.  I put an explanation in line 9 that I had closed a 'Contributory
            Define Pension Plan and did a direct trustee to trustee rollover'.  
           In box 10 you outline that OPM did not provide a 1099.
           This form is needed since OPM does not, nor are they required to, issue a 1099 .

   The first 4852 shows your contributions and the second shows your earnings.  Line 8J shows a 
           distribution code '2'.  

Net taxable impact - $0.  Just make sure they are both trustee to trustee transfers.  Do not get the funds yourself, have them sent direct.  Before you do this, make sure your Roth holder will accept and make sure you specify the correct Roth account number so they do not deposit it into your regular IRA account.

I would like to hear from others if they did it differently.  It makes total sense that there is no tax as the contributions are after tax anyway.  I did the transaction almost back-to-back, as I did not want OPM to hold my personal funds longer than necessary.

SM




spencerm62011-11-20 01:24:27
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The HalfBreed  
#19 Posted : Sunday, November 20, 2011 1:41:43 AM(UTC)
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crs1 wrote:
When you finally close your account, you may have to prove you did not exceed the 10% if you have contributed over a certain dollar amount. At that time, you would need to obtain the official SF 2806 info. I wouldn't worry with it until then, unless, like I said, you are trying to contribute exactly 10% at time of account closeout.









Since I was not eligible for SS, I never really kept the SS Statements, and only have pay records going back 10 years. Our Leave & Earnings statement function was transferred to the Dept. of the Inerior, and it may be easier to send an SF-2806 to OPM. Altho, I KNOW I saw a SS annual form over the past 7 months or so....just can't find it....Unhappy 
Guess I'll have to look harder.

This thread is certainly enlightening....
RETIRED 12/19/2012 !!! Good Bye Tension !!! Hello Pension !!!
crs1  
#20 Posted : Wednesday, November 23, 2011 8:08:07 AM(UTC)
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spencerm6,
 
Thanks for the tax filing information. I'll go through the requirements in detail when I file but what you say is in line with my reading.
 
I want to confirm the premise of your post as my VCP after tax contributions landed in my Roth IRA today, roughly 7 weeks after submittal of the election form. It can indeed be done. My rollover of interest to TSP is still pending but I expect it any day.
 
I was able to contribute roughly 9.4% to the VCP over a period of 5 years before I closed the account for reasons similar to what you stated. I must say it was an interesting journey given the amount of research and such required to understand what can be done with this. I don't think I've ever seen an investing topic with so little published information, mostly due to changing tax laws and the few who pursue this. This forum, with posters like yourself and emkute, was a great help.
 
Best of luck,
crs1
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