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• 74451
  

  Based upon the last comment above,it is correct that, just prior to retiring, I can deposit up to 10% of my lifetime earnings? Additionally, when I retire at age 60, that the annuity yield will be 7% + 1% (.20% x 5),for a total of 8%? Seems pretty good, regardless of the tax consequences. Additionaly, can that total amount be converted to a traditional IRA or a Roth without any tax liabilities? 8% tax- free seems too good to be true. I guess I'm missing something?

  Dennis Posted April 9, 2009 1:17 PM
• 54110
  

  The IRS references do not clearly state that basic contributions, in addition to the interest, can be directly transfered to an IRA upon retirement. Indeed, only the 2004 election form appears to show this, most critical, part of the transaction, while everything else is silent or only mentions interest. Is there any explicit IRS verbage somewhere else?

  Warren Posted July 14, 2008 11:20 AM
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  I plan to retire in few months with 38 years fed service. My liftime fed income is over $2mil. I plan to follow the scenario of making a large, $200K, deposit to my VC acct I just opened, then transfer it to a trad IRA then transfer that to a Roth. I am concerned about possibility of the entirie trad IRA amount being subject to tax when I transfer toa Roth, because that is the typical situation when rolling a pre tax trad IRA to a after tax Roth. This would be double taxation...how can I avoid this?

  steve hillebrand Posted July 18, 2007 3:37 PM
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  As a Reemployed Annuitant with redeposit still owed for CSRS withdrawal back in '81, can I make the redeposit at this time, even though I receive annuity from OPM, in order to be able to contribute to the Voluntary Contributions program? I will meet the requirements for redetermined annuity in '09 when I plan to leave again if that makes any difference.

  T. Smith Posted July 13, 2007 9:53 AM
• 28027
  

  I recently attended a class on retirement benefits and it covered briefly the Voluntary Contributions (VC). One topic I have a question on is the 'transfer' of VC upon retirement. I left the class with the understanding I could upon retirement (2009) move the principal to an IRA, and perhaps take the interest and place in my TSP. Once in an IRA there was reference about 'transferring' to a Roth IRA in 2010 without penality. Can you provide any details?

  Lee Kumbar Posted July 10, 2007 7:01 AM
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  Upon my retirement I rolled over my entire voluntary contribution fund to a traditional IRA as allowed per RI 38-125. How do I get my contribution to the fund added to my IRA basis? IRS Form 8606 specifically excludes rollovers.

  Karl Finanger Posted March 6, 2007 9:32 AM
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  Apparently people at OPM don't know anything about applying for VC at the time of retirement. The response I got from the OPM person handling my case was, "I suggest that you contact Ms. (agency personnel person) about that form and question her as to why you would need that at retirement. I am under the impression that this type of action is taken prior to retirement. The voluntary contributions files are closed out prior to coming to up to us for processing of retirements."

  GovExec.com reader Posted November 20, 2006 2:07 PM
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  I'd love to see and article about the Voluntary Benefits Program in close comparison to a conversion to a Roth IRA, especially the pros and cons of a contribution of making a large lump sum (from regular savings), into the VCP, then at retirement a couple of years later, into a Roth, assuming the post-retirement income is less than the ceilings. Are there planners out there that know this stuff?

  Mike Duda Posted August 13, 2006 1:01 PM
• 16762
  

  Earnings on the account accumulate on a tax-deferred basis and can be withdrawn free from federal income taxes, provided that they are taken according to qualified distribution guidelines.

  GovExec.com reader Posted May 17, 2006 12:20 PM
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  I worked it out and you are better off buying Treasury Notes that pay 5.1 percent today for 30-year term and are exempt from state taxes forever (I used a Virginia tax rate of 5.75 percent and a federal rate of 28 percent). With the information you provided on volunteer contribution annuity you would receive an after tax annuity of about $1,788 a year (you example does not tax the annuity as far as I can tell). With the T-Notes you could withdraw $2,700 after taxes and be far ahead of where you are with the volunteer contribution.

  What is missing?

  Taxpayer Posted May 15, 2006 9:29 AM
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  Here are a few responses to the comments below:

  1. Earnings on a ROTH IRA accumulate on a tax-deferred basis and can be withdrawn free from federal income taxes, provided that they are taken according to qualified distribution guidelines.

  2. The main advantage of Voluntary Contributions over the TSP is that you can contribute after tax dollars to the VC program and the only method of making contributions to the TSP is payroll allotment. Consider having $25,000 sitting in a savings account earning 1.5 percent interest ... You could not put this money in the TSP, but you could contribute it to VC and earn 4.125 percent interest (tax-deferred)!

  3. I agree that one big advantage of the VC program is the ability to transfer the account to a traditional IRA and then, if qualified, to a ROTH IRA for tax-free growth!! I am sorry this was not emphasized more strongly in my article. You said it well, however!

  Tammy Flanagan Posted May 11, 2006 3:45 PM
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  I believe that if you check it out that the earnings on a Roth-IRA are not exempt from taxation. Withdrawals are taxed at your income rate, after withdrawing your contributions (taxes pre-paid). Early in your career, when you're in a lower-income bracket, this could be a good deal. Later when you're paying at a maximum tax rate, it may not be so good.

  GovExec.com reader Posted May 10, 2006 10:47 AM
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  I'm curious as to the answers that "limited funds" will receive and how many others are still confused about today's limits. I read that inquiry and wondered if the poser was thinking of last year's limits.

  Since you have to maximize your regular TSP contributions before participating in the catch-up program, you have to already be socking away $577 per pay period to reach the new limit of $15,000. ($15,000 divided by 26)

  With the additional $5,000 catch-up adds, everyone-over-fifty's absolute maximum amounts to $769. ($20,000 divided by 26) If you can put away $769 a pay period, well I don't call that working with limited funds.

  It seems to me the real question is: Dollar per dollar, which is the smarter vehicle, TSP or Voluntary Contributions?

  I, like "limited funds," am curious if there is an advantage to participating in the Voluntary Contributions at even a minor expense of maximizing TSP participation.

  My thoughts are:

  1. TSP lowers your tax signature and thus current year taxes.

  2. Because TSP is in before-tax dollars, for every $100 of TSP contribution most folks only see a net loss of $75 in working capital per pay period.

  3. While I believe in multiple investment strategies, the KISS principle is my guiding light and, therefore, I keep my strategies limited to a handful of the proven.

  So saying, without further input, I would consider the Voluntary Contributions only after I've maxed my TSP; and I can't do that yet.

  Please correct me, if I'm wrong.

  Tip off

  Tip Posted May 9, 2006 3:26 PM
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  If one has limited funds to add to retirement contributions, is it better to make "catch up" contributions to TSP or to set up a "voluntary contribution" account?

  GovExec.com reader Posted May 9, 2006 11:11 AM
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  The article neglected to mention one powerful advantage of using the VCP Program . . . . . the ability to make a large conversion to a Roth where the money will grow tax-free forever for you and your heirs (under current law). The VC Account is considered to be a qualified retirement plan. The contributions (which were paid from after-tax dollars) can be rolled over into a traditional IRA. Subject to income qualification, the contributions can then be converted to a Roth. An individual making $1M over his/her federal career could make a lump sum deposit to a Roth of $100K in this manner without paying any taxes to convert (unless there were already untaxed dollars in the IRA) This is a potentially huge advantage.

  GovExec.com reader Posted May 9, 2006 8:46 AM