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Retirement Planning


Whether you are close to federal employee retirement or just starting out in your career, this is the place to share ideas with your federal colleagues on creating a secure financial foundation.


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KBurg  
#1 Posted : Sunday, March 25, 2012 10:26:15 PM(UTC)
crescentnola

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Hello all:
I have a Charles Schwab Rollover IRA Account from past employment and am now a federal employee actively contributing to a TSP account..  I have been wondering if I should:
 
1.) rollover the balance of the Schwab IRA into my TSP account and close Schwab account just so all my retirement funds are in 1 account for better manageability; or
2.) keep Schwab IRA rollover account because there is some value to having an outside IRA account?  But I don't know if there is any value in having an outside IRA account at Schwab...  Obviously, a Schwab IRA account would have higher fees than the TSP but is it substantial enough?  I have enjoyed having access to the Schwab website's financial information and IRA securities options for investment purposes which are much broader than the TSP options...
 
Any thoughts on this from the pros?  Need advice....
 
Have a great day everyone! 
Fed1969  
#2 Posted : Monday, March 26, 2012 1:04:18 AM(UTC)

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On the plus size, your probably have more flexibility with your Schwab account.  This means opportunity to earn more, or lose more.

On the negative side is the high fees Schwab charges.
MMOB  
#3 Posted : Monday, March 26, 2012 1:27:25 AM(UTC)

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Fed1969 wrote:
On the negative side is the high fees Schwab charges.
 
Ridiculous.  Between my wife and I we have four - count 'em four - IRA accounts with Schwab (two traditional & two Roth) and we pay exactly zero in fees for just having the accounts. Now of course there are some costs associated with trading securities, but even these are miniscule.  For example, someone could invest $600,000 to buy 100 shares of AAPL and it would cost all of $8.95.  So exactly what are these high fees to which you refer?
 
Crescentnola: As you can see from the above, we have four IRA accounts with Schwab in additional to our two TSP accounts, so I believe it is beneficial to have IRAs in addition to TSP. We also have a regular joint taxable account with them.  We do so because I like having the additional investment opportunities that Schwab provides.  I like being able to buy and sell individual stocks, bonds, options, etc.  Now if you are uncomfortable doing so, and prefer to have your retirement funds strictly in indexed mutual funds or guaranteed government securities, then go ahead and consolidate everything with TSP.
 
There's really not a right or wrong answer (unless you rely on erroneous info).  It all depends upon your investment philosophy and how comfortable you are with investment risk.

KBurg  
#4 Posted : Monday, March 26, 2012 4:00:55 AM(UTC)
crescentnola

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Hi MMOB:

I was referring to the fees that the various mutual funds charge and NOT to Schwab fees.

I've read that these administrative/management fees charged by funds really add up over time and that the fees and actualy dollar amounts being charged to IRA holders thru their mutual fund managers are NOT very transparent and there hard for the account holder to even calculate.  This was one of the main PROS I've always heard/read about the TSP vs. privately-held IRA accounts.
 
Hope this clarifies....
MMOB  
#5 Posted : Monday, March 26, 2012 4:11:59 AM(UTC)

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crescentnola wrote:

Hi MMOB:

I was referring to the fees that the various mutual funds charge and NOT to Schwab fees.

I've read that these administrative/management fees charged by funds really add up over time and that the fees and actualy dollar amounts being charged to IRA holders thru their mutual fund managers are NOT very transparent and there hard for the account holder to even calculate.  This was one of the main PROS I've always heard/read about the TSP vs. privately-held IRA accounts.
 
Hope this clarifies....
 
No need to clarify.  My "ridiculous" comment was directed to Fed1969 who stated that Schwab charged high fees.  FWIW, I agree with you about mutual funds which is why I don't invest in them.  I buy and sell individual stocks for the most part.  The closest I come to owning a mutual fund is on the occasion when I'll purchase a particular ETF for a period of time. 
Knight  
#6 Posted : Monday, March 26, 2012 5:46:41 AM(UTC)

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Correct me if I am wrong but if you retire before 59.5 from the GOV you can start pulling from your TSP ASAP. However the IRA still has the 59.5 age limit and you could not pull from it until you cross that date. Maybe a mix of both is best.
martyb  
#7 Posted : Monday, March 26, 2012 9:44:05 AM(UTC)

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You can pull from both the TSP & the IRA, it's just that if you do that with the TSP, you don't pay the 10% IRS penalty, but with the IRA, you do pay the penalty.  I think that's what you're talking about, Knight.  Of course, there are variables with everything....not so much the TSP but with the IRA.
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Not retiring yet  
#8 Posted : Monday, March 26, 2012 10:01:42 AM(UTC)
Not retiring yet

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If there are fees with Schwab, it will come later.  THE TSP  has a set fee for the annuity.  If someone reads the Schwab  IRA  material,  you may find, that when you finally make withdrawals. there will be a percentage attached to the amount, and the number of years of withdrawals. 
MMOB  
#9 Posted : Tuesday, March 27, 2012 12:20:49 AM(UTC)

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Not retiring yet wrote:
If there are fees with Schwab, it will come later.  THE TSP  has a set fee for the annuity.  If someone reads the Schwab  IRA  material,  you may find, that when you finally make withdrawals. there will be a percentage attached to the amount, and the number of years of withdrawals. 
 
I'm sorry, but you're post makes no sense whatsoever.
JimEli  
#10 Posted : Tuesday, March 27, 2012 12:46:04 AM(UTC)

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martyb wrote:
You can pull from both the TSP & the IRA, it's just that if you do that with the TSP, you don't pay the 10% IRS penalty, but with the IRA, you do pay the penalty.  I think that's what you're talking about, Knight.  Of course, there are variables with everything....not so much the TSP but with the IRA.
 

This is misinformation. Both TSP and IRA are subject to a 10% penalty for withdrawal prior to 59.5, with the following exceptions:

1.  You can withdraw from the TSP if retired in the year you turn 55 (or older).

2.  You can convert your TSP into an annuity.

3.  You can use IRC 72(t) rule to withdrawal from either/both a TSP or IRA via SEPP prior to 59.5.

 
All of these exceptions have additional stipuations attached.
martyb  
#11 Posted : Tuesday, March 27, 2012 3:35:40 AM(UTC)

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JimEli wrote:
martyb wrote:
You can pull from both the TSP & the IRA, it's just that if you do that with the TSP, you don't pay the 10% IRS penalty, but with the IRA, you do pay the penalty.  I think that's what you're talking about, Knight.  Of course, there are variables with everything....not so much the TSP but with the IRA.
 

This is misinformation. Both TSP and IRA are subject to a 10% penalty for withdrawal prior to 59.5, with the following exceptions:

1.  You can withdraw from the TSP if retired in the year you turn 55 (or older).

2.  You can convert your TSP into an annuity.

3.  You can use IRC 72(t) rule to withdrawal from either/both a TSP or IRA via SEPP prior to 59.5.

 
All of these exceptions have additional stipuations attached.
 
 
I was focusing on Knight's reference to retiring prior to age 59.5, and in my mind, that meant at age 55 or later.  I should have clarified that you have to retire in the year of your 55th birthday or later to avoid the penalty.  I knew that but didn't say it.  Thanks for the correction.
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Knight  
#12 Posted : Tuesday, March 27, 2012 5:08:58 AM(UTC)

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And I made the assumption too that we were talking about retiring at 55+ but not quite 59.5.
 
Let me try rephrasing things:
 
If I understand things, under normal conditions you will not suffer the 10% penality for pulling from your TSP after retiring if you are older then 55. However you cannot pull from your IRA, without penalty, until 59.5 even if you are retired.
JimEli  
#13 Posted : Tuesday, March 27, 2012 8:13:38 AM(UTC)

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Knight wrote:
And I made the assumption too that we were talking about retiring at 55+ but not quite 59.5.
 
Let me try rephrasing things:
 
If I understand things, under normal conditions you will not suffer the 10% penality for pulling from your TSP after retiring if you are older then 55. However you cannot pull from your IRA, without penalty, until 59.5 even if you are retired.

An assumption is a bad thing to make when dealing with the IRS. Wink

 

Yes, one can withdraw from the TSP without incurring a 10% surtax (penalty) if you retire (from federal service) in the calendar year you attain 55 or older. Additionally, the assets must remain in the TSP.

 

The IRC imposes a 10% surtax (penalty) on all distributions from deferred accounts (IRA, TSP, etc), but includes 12 exceptions. Attaining age 59.5 is simply the first exception to avoiding the penalty.

 

The basic exceptions are:

1. Age 59.5

2. Death

3. Disability

4. SEPP

5. Separation of service at age 55 (applies only to "qualified plans", of which the TSP is, but an IRA is not).

6. 404(k) stock dividends

7. Payment of a tax levy

8. Medical expenses

9. QDRO

10. Payment of health insurance while unemployed

11. Higher education

12. First time home purchase

 

Please note, these exceptions carry many qualifying stipulations.


JimEli2012-03-27 17:04:42
Not retiring yet  
#14 Posted : Tuesday, March 27, 2012 9:54:10 AM(UTC)
Not retiring yet

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When you buy the Schwab   annuity      You will be paying a fee.  That is based on $$ amount, and number of years.    You don't think Schwab, would be the caretaker, and eventual distributor of YOUR  money   for free,  or even had that thought?  And yes, they will probably be higher than a TSP annuity fee.
MMOB  
#15 Posted : Wednesday, March 28, 2012 1:11:22 AM(UTC)

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Not retiring yet wrote:
When you buy the Schwab   annuity      You will be paying a fee.  That is based on $$ amount, and number of years.    You don't think Schwab, would be the caretaker, and eventual distributor of YOUR  money   for free,  or even had that thought?  And yes, they will probably be higher than a TSP annuity fee.
 
You're making even less sense.  Who buys an annuity with their IRA? 
 
Let me try to make this as clear as possible for you:  Schwab charges no fees over the years and decades that they are the "caretaker" of your IRA.  This includes the years and decades that you are adding money to your IRA as well as the years and decades when you are withdrawing money from your IRA.  Is that clear enough?
 
To be concise:
 
There is no fee to open an IRA with Schwab.
There is no fee to maintain an IRA with Schwab.
There is no fee associated with making withdrawals from your IRA with Schwab.
H75CF  
#16 Posted : Wednesday, March 28, 2012 3:11:10 AM(UTC)
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There are no fees to open or maintain an IRA with Schwab...but they do have fees for trading, for using their automated phone system, for broker assistance etc.  These fees can be found in:  http://www.schwab.com/cms/P-1036363.22/PG_REG23060-18_FINAL_141870.pdf?cmsid=P-1036363&cv12&
Whether your monies are in an IRA or in the TSP, you will most likely be doing some trading over the years.  It's important to know how much this will cost you. 
Fed1969  
#17 Posted : Wednesday, March 28, 2012 4:00:06 AM(UTC)

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How do Schwab IRA earnings compare to TSP earnings?
MMOB  
#18 Posted : Friday, March 30, 2012 2:28:00 AM(UTC)

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Fed1969 wrote:
How do Schwab IRA earnings compare to TSP earnings?
 
Huh?????
 
You apparently don't understand how IRAs work.
 
A "Schwab IRA" is not an investment in and of itself.  It is an account into which an individual contributes money and then decides how to invest that money.  You can purchase mutual funds, or individual stocks and bonds, or REITs, or a myriad of other investments.  Each individual's IRA will have a different portfolio and consequently, each individual will have different earnings based on the performance of their portfolio.
Knight  
#19 Posted : Friday, March 30, 2012 8:36:12 AM(UTC)

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JimEli wrote:

 

The basic exceptions are:

1. Age 59.5

2. Death

3. Disability

4. SEPP

5. Separation of service at age 55 (applies only to "qualified plans", of which the TSP is, but an IRA is not).

6. 404(k) stock dividends

7. Payment of a tax levy

8. Medical expenses

9. QDRO

10. Payment of health insurance while unemployed

11. Higher education

12. First time home purchase

 

Please note, these exceptions carry many qualifying stipulations.


 
Of all of these only 1,3,5 and 8 might be used by me. But most likely only 1 & 5. So I am back to my statement.
FlatBroke  
#20 Posted : Sunday, April 8, 2012 12:31:15 AM(UTC)

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crescentnola wrote:
Hello all:
I have a Charles Schwab Rollover IRA Account from past employment and am now a federal employee actively contributing to a TSP account..  I have been wondering if I should:
 
1.) rollover the balance of the Schwab IRA into my TSP account and close Schwab account just so all my retirement funds are in 1 account for better manageability; or
 
2.) keep Schwab IRA rollover account because there is some value to having an outside IRA account? ...   
Have a great day everyone! 
 
Answer to question 2 is:  YES. The 'value' of the IRA account depends on how the money is invested. How is your money currently invested in your Schwab IRA account?
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