While the Thrift Savings Plan overseers work to fix the TSP website and system behind it, users report ongoing problems: mainly long telephone wait times and a lack of control over monthly withdrawals. Financial coach and federal retiree Abe Grungold discussed this and more on the Federal Drive with Tom Temin.
Tom Temin Abe, before we get to some of the issues you’re experiencing with tsp, and we are hearing quite a bit about those from lots of readers too, and listeners, let’s talk about contributions to retirement accounts in the first place in 2023. What kind of planning should people do now? If they’re not on some kind of an automatic escalator to how much they do contribute every year?
Abe Grungold Yeah, Tom, thank you for having me on today. January is an excellent month to think about your IRA. Even though you’re a participant in the TSP as an active federal employee, or if you’re a retiree, and maybe you’re working a few days a week, both people, retirees and active federal employees should be thinking about contributing to an IRA. And for active employees, if you can afford to do it, you can contribute up to $6,500 a year in a Roth or traditional IRA, if you’re under the age of 50. And if you’re over 50, you can contribute $7,500 to your IRA. But you have to be careful with the Roth IRA, because there’s a modified adjusted gross income salary limit for those people who are interested in the Roth IRA. There’s no limit on those who want to invest in the traditional IRA.
Tom Temin Yes, because of the Roth is after tax contributions. Right. And so there’s an issue of what your tax rate will be later on at the time you withdraw it, and you will presumably have paid taxes on it. But so that’s the complicating factor, correct?
Abe Grungold Yes, the IRS wants to limit those — well, wants to make it tax available for those who have an income under a certain value to take advantage of the tax deferment. But if you are over those salary limits, then you certainly can still contribute to a traditional IRA.
Tom Temin And do we know what those limits are, roughly?
Abe Grungold Yes, for 2022, if you were single, it’s $144,000. In 2023, if you’re single, it’s $153,000 now. If you’re married, in 2022, it was $214,000. And in 2023, if you’re married, it’s $228,000. So it’s really for someone who is on the lower salary scale, and they could take advantage of the Roth. But certainly, you can contribute to a traditional IRA, and whether you’re an active federal employee, or you’re a retiree, still working a little bit.
Tom Temin Got it. So yeah, those people at the $144,000 or $153,000 for a single filer, and single contributor that’s getting to GS 14-15, even the lower ends of the Senior Executive Service.
Abe Grungold Yes, that’s true. Whether you can contribute to the Roth, it’s wonderful because it’s tax free when you take the money out. But even when I was a federal employee, and I was in that salary level, I was still contributing to an IRA, whether it was a traditional IRA, or a Roth IRA. I always took advantage of that, because you are just growing your retirement plan even beyond imagination, I hate to say. It’s just something to do and you’d be surprised how much money you can save and grow over the years.
Tom Temin Right, the old adage, start early and let the magic of compound interest take care of itself.
Abe Grungold Yes, I was in the IRA in 1981, I believe is when it first came out and I was not a federal employee then. And then when the Roth IRA came out, I believe in 1997, I was the first person standing in line to convert it because my balance in the IRA was not that large. So yes, I always contributed to my IRA.
Tom Temin We’re speaking with Abe Grungold. He’s a financial coach and himself a retired federal manager, working with clients out of Florida. And let’s get to the TSP system itself right now. Six months, seven months in, I guess a lot has improved, but it’s still some ways to go. What have you experienced personally recently?
Abe Grungold Well, it’s unfortunate that, with respect to withdrawals from a personal perspective, I was forced to take a $4,000 withdrawal, when I only wanted to take a $2,000 withdrawal, and the minimum is $25 per month. Now, I was recently contacted by two people. One person told me they were told by the TSP that they were forced to take a $7,100 per month withdrawal from the TSP, and the other person was told they had to take a $9,300 monthly withdrawal from the TSP. And they both were aware that the policy is $25 per month, but they could not convince the TSP representative that they wanted to make a lower monthly withdrawal. I mean, that’s one issue. Another issue from a personal standpoint, I received my monthly withdrawal from the TSP, and the Federal Tax Withholding went up $146 for that month, and I couldn’t find any information on that. I looked at the entire TSP website, couldn’t find any information regarding the increased federal withdrawal. I didn’t receive anything in the mail. So I called the TSP representative. And after 30 minutes of searching, he said there was a systemwide change regarding the federal withdrawal. And I have a married status and that was changed the single status. And he asked me if I wanted to correct that. I said no, don’t correct it, I don’t want to take the chance of it getting fouled up. But a friend of mine who is a retiree from the government, he called me that very same day. And he told me that he had an increase of a federal withholding of $85 per month. Now he’s already single. So why did his federal withholding go up? No one could explain it. Just they always say it’s a systemwide change without any explanation.
Tom Temin Interesting. And this friend has not married your wife to your knowledge.
Abe Grungold We were coworkers and he’s been a retiree for 10 years now. And he contacted me immediately. And he said that he couldn’t understand it. But he did request a correction. I said good luck. I don’t know what can happen with something like that. And then the third issue, I hate to say, when I was on hold, waiting for the TSP representative, I kept listening to the message that they keep playing over and over again. And they were saying that the TSP is going to make required minimum distributions (RMD) for participants if they haven’t made them or they’re required to make them. They’re going to make them on their behalf, and send out a paper check in the mail, which this is 2023. This is the worst mistake that the TSP can make. Medicare does not send out a paper check. Any other agency does not send out paper checks. So they need to have the participant sign up for a direct deposit, specifically for RMD. And in the event that participant forgets to make their RMD, at least then if the TSP does it for them, it’s going to the right place, because to send out a paper check, it could be stolen from the mail. It could be sitting in a mailbox, because people have multiple homes or they’re on extended vacations. And if they’re not aware that that check is coming, it’s going to be a nightmare for some that participants.
Tom Temin But for those — just to play devil’s advocate — that are of the age where they have to make the required minimum withdrawal, isn’t it a good thing that it’s calculated for them and automatically goes out?
Abe Grungold Yes, that is a wonderful thing that the TSP is doing that for them because it’s a little difficult to figure out when is the proper time to take it exactly how much you have to withdraw, and that changes each year, but simply have the participant in the TSP set up a direct deposit, just like they set up direct deposit for their monthly withdrawals. It’s just there in the event that it has to be sent out. You don’t want a paper check sitting in the mail.
Tom Temin Sure. So you do have that capability at the TSP site, though to enter the data to get it electronically deposited.
Abe Grungold Yes, yes. It’s very simple to do. I did it for my own monthly withdrawal. It took five minutes.
Tom Temin And when you said that they told you that they were going to take out more than you wanted to take out each month, were they in effect, trying to get you to your required minimum distribution automatically? Are you there yet?
Abe Grungold No, no, not at all. I’m far from that point. And this is totally a separate issue. Federal withholding, when you make a monthly withdrawal, in your first annuity, or when you make a monthly withdrawal into your TSP, you do have to take out some federal withholding. Though this is totally a separate issue from RMD. And I don’t mind taking federal taxes out of my TSP withdrawal. But at least notify me ahead of time that this is going to happen. This is 2023, they have an electronic message capability to send out a systemwide message to everyone. Federal withdrawal is going to be changing in 2023. Be on the lookout. So when you get that deposit, you’re saying yourself, okay, I see a slight difference. Now I understand what that is. Communication is really the key here.
Abe Grungold And for those people that were having $7,100 withdrawn, not taxes, but the withdrawal from the TSP, or $9,300. Were those attempts to get to that minimum withdrawal, or seems like a lot of money to pull out 10,000 a month.
Abe Grungold Both of these people that I mentioned, the $7,100 monthly withdrawal, the $9,300 monthly withdrawal, both of them were in their early 60s, and they are new retirees. So they are retiring from federal service, they want to start taking a little bit out of their TSP each month. And normally people take out a couple of percentage or a couple thousand dollars. And they both communicated to me that their plan was just to take out a few thousand dollars per month, certainly not those numbers. And those numbers just didn’t make any sense. And each of them did tell me what their balance was. But it just didn’t make any sense to me how the TSP even came up with those numbers.
Tom Temin And the issue is you can’t change it very easily.
Abe Grungold No, you cannot change it easily. I tried to change mine. And the module doesn’t allow you to make that change; you have to call up the TSP representative, cancel your monthly withdrawal, and then create a new monthly withdrawal. So there is a possibility that you may go a month without receiving a monthly withdrawal from your TSP. That is just not a good system. It should be easy to go in, to say look, you’re taking out $3,000 a month. I want to change it to $3,500 a month or I want to change it to $2,500 a month. It’s still going to the same place and they’re still taking out federal withholdings. So why is it complicated to just make a calculation change? It should be very simple. You can do it on other websites. I can mention some websites. But it’s not necessary. But you can certainly do it on other websites when you’re getting monthly withdrawals or quarterly withdrawals. And you can make those changes easily.