Retirement, taxes, and TSP

[Moose]

I recently read a Yahoo post that....The CARES Act could help you to reduce or avoid taxes on Social Security benefits for one simple reason: It waives the requirement that you take required minimum distributions (RMDs) from your 401(k) or traditional IRA accounts this year.
Does this mean that you do not have to start RMD or does it mean if you have started RMD could can stop them for this year?
moose

[crondanet5]

If you rolled your TSP Account out of the TSP Program to a financial institution check with them. If not, call TSP. Get the straight skinny on how it works. I personaaly advise taking the RMD this year as it is a transfer from as-yet-to-be-taxed financial resource to after-tax financial resource you can access if necessary. Then your goal should be to wisely invest the remaining balance to recover-- and increase-- your remaining balance so next year you have to take a bigger RMD (Awwwww). I would also once again remind the old timers and newbies that the 401k program was never meant to be a retirement program. It was intended to have sufficient funds for health care expenses after you were 80+ years old. It gets expensive particularly if you do not have long term health care. Hope this helps.

[Scarfinger]

If you rolled your TSP Account out of the TSP Program to a financial institution check with them. If not, call TSP. Get the straight skinny on how it works. I personaaly advise taking the RMD this year as it is a transfer from as-yet-to-be-taxed financial resource to after-tax financial resource you can access if necessary. Then your goal should be to wisely invest the remaining balance to recover-- and increase-- your remaining balance so next year you have to take a bigger RMD (Awwwww). I would also once again remind the old timers and newbies that the 401k program was never meant to be a retirement program. It was intended to have sufficient funds for health care expenses after you were 80+ years old. It gets expensive particularly if you do not have long term health care. Hope this helps.

Hi Crodanet. Are you saying that after retirement, even without a job, that I could still contribute my RMD to a ROTH IRA because I am required to pay taxes on the RMD?

[crondanet5]

No. I am saying when you achieve the required MRD age you should take advantage of transferring that amount to a taxable investment account to have immediate access to that money while wisely managing your TSP Account to increase the balance requiring a greater MRD next year. You planning on working forever or are there other things to do beside enslaving yourself for a few Shekels?

[Scarfinger]

to a taxable investment account

Ok. I was thinking there may still be a way to transfer to a non-taxable account.

But I got it. Put it in a taxable account. Will do

[crondanet5]

In all honesty I hope your TSP Account is worth a million by the time you federally retire. And if so, your MRD transfer of that wealth to an after tax investment account will greatly help your heirs. (Remember, you continue to use your investment expertise to increase the value of your TSP Account every year so your MRD gets larger every year. Like having your cake and eating it too. Do the things necessary to maximize the annual contribution you can make to your TSP Account to get to a million dollars. Your parents would be proud of you and your co-workers who put the minimum in the G Fund will be shocked. So cool. Got it?

[evilanne]

I recently read a Yahoo post that....The CARES Act could help you to reduce or avoid taxes on Social Security benefits for one simple reason: It waives the requirement that you take required minimum distributions (RMDs) from your 401(k) or traditional IRA accounts this year.
Does this mean that you do not have to start RMD or does it mean if you have started RMD could can stop them for this year?
moose

You have option of not taking the RMD on any account that has one. They passed legislation at the end of last year that changes the age you have to start RMDs and also screwed up the inheritance rules for Retirement accounts IMO

Only part of Social Security Benefits is taxable depending on what other income you have; your benefits may be taxed a 0%, 50% or max of 85%. See https://www.ssa.gov/benefits/retirement ... taxes.html Many government employees are likely being taxed at 50% or 85% rate based on their pensions and any distributions from retirement accounts or other income, especially if they are subject to RMDs so I'm not sure if many government retirees could benefit by not taking RMD. If RMD pushes them over the dollar threshold for their filing status, a few might be able to reduce taxable SS benefits in this way.

The requirement not to take RMD is usually special law passed when the stock market crashes and people really don't want to sell when market is down like back in 2009 (they did the same thing). It applies to any account that has RMDs. Not sure that it really makes sense this year but each situation is different. It really would depend on whether you need the additional income or not.

If you have earned income from a job or self employment and you don't need the money, you could always put the money into Roth (if you haven't already funded one). Cron makes some good points. Putting money in regular investment account is always a good option

[crondanet5]

And rolling at least the MRD out of the TSP Account is prudent investment management as well. Remember that the TSP is a tax deferred program, not tax free. Sooner or later the Account will pay taxes due. Better sooner. What is leftover after paying tax is yours to pay medical expenses.

[JBD3]

You do not have to take an RMD this year. If you have one started, I think you can stop it and possibly return prior payments if you can - if you wish to do so. I take mine all at once and do not plan to do so this year from an inherited IRA.