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13 Things to Know About Your Annuity Options

There are some very important factors to consider about your survivor annuity election that you need to understand by the time you file your application for Civil Service Retirement System or Federal Employees Retirement System benefits. Since this work week ends with Friday the 13th, I thought I would tell you about 13 important things to know about this decision.

Most employees complete their retirement application at least 30 days before their retirement date. But the annuity election is so important that you should start to think about it a year or more before your retirement. Even if you’re at mid-career, it’s not too early to understand your annuity choices.

When you fill out your retirement application, you must choose among five annuity options:

  • A reduced annuity with a maximum survivor annuity for a current spouse.
  • A reduced annuity with a partial survivor annuity for a current spouse.
  • An annuity payable only during your lifetime.
  • A reduced annuity with a survivor annuity for a person who has an insurable interest in you.
  • A reduced annuity with a survivor annuity or partial annuity for a former spouse or spouses.

At first glance, the decision for most employees would be...

A Healthy Tax Advantage

Many federal employees are saving money on their taxes by making smart choices among their Federal Employees Health Benefits Program options. These choices include taking advantage of premium conversion benefits, in which health insurance premiums are deducted on a pre-tax basis, and participating in the flexible spending account program. (These benefits are only available to employees, not retirees.)

Another way to save on your tax obligations is to contribute tax-free dollars to a health savings account, which is available to both employees and retirees—although there are requirements that must be met in order to participate. HSAs are somewhat similar to FSAs, in that money is set aside to pay for out-of-pocket health care expenses that is not subject to federal, state, FICA, or Medicare taxes.

But HSAs are different from FSAs in many ways, including:

  • You can only contribute to an HSA if you are covered by a high deductible health plan and have no other health insurance coverage. (That includes Medicare Parts A and B and Tricare. Also, you must not have accessed VA benefits in the last 90 days.)
  • HSA funds stay with you when you change plans, switch jobs or retire. The money belongs to you...

Watch Out For TSP Tax Penalties

A few weeks ago, we looked at the issue of paying taxes on your retirement income. This week, our topic will be avoiding tax penalties. In life, if you break the rules, you can expect some sort of penalty. For example, if you drive on a highway at a speed above the posted limit, there’s a chance you’ll get a ticket. After all, those are not “suggested” speed limits—as I once thought.

You can incur tax penalties on your federal benefits if you don’t follow the tax rules. So it’s important to know them, or you could end up with a higher tax bill than you were expecting.

The tax penalties are summarized in the instructions for IRS Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.” This form is used to report taxes on a variety of tax-favored benefits, but for this week’s column, we’ll focus on penalties assessed on Thrift Savings Plan distributions (or the lack of distributions) for separated and retired employees.

There are tax penalties both if you withdraw money from your TSP account too early and if you don’t begin to withdraw funds...

It’s Not Just About the Money

What is wellness and what does it have to do with retirement planning? That’s what I wondered when I heard the topic of the For Your Benefit radio program that I was asked to co-host earlier this week. Once I understood the definition, it makes perfect sense. As my dad used to say, take care of your health. Without it, money (and retirement) won’t really matter.

Paula Jakub, executive vice president and CEO of the American Foreign Service Protective Association, was our guest on the show, and she wanted to focus on wellness. Jakub oversees the various insurance and specialty programs offered by the association. If you visit the Foreign Service Benefit Plan website, you’ll see its commitment to helping participants maintain their health and well-being. They’ll reward you financially if you take the time to participate in opportunities to maintain and improve your health. What’s in it for them? Fewer claims. What’s in it for you? Better health and fitness—and possibly some money in your wallet.

Many other plans in the Federal Employees Health Benefits Program do the same thing, and the Office of Personnel Management encourages them. “The leading causes of...

Retirement Facts: A True-False Quiz

Over the years, I’ve conducted more than 3,000 retirement planning seminars. That’s a lot of talking. Teaching is very rewarding for me. It doesn’t matter if it’s an auditorium of 500 people or a consultation with one employee, the best part is when you see the “ah-ha” moment of understanding in your students’ eyes.

The other thing I’ve learned over the years is to know when to say, “I’m not sure, but I’ll get back to you.” There’s nothing that will cause you to lose credibility faster than getting caught saying something dead wrong with great conviction.

Let’s test your understanding of the retirement process. See how you do with the following true or false statements about subjects that commonly come up in pre-retirement or mid-career seminars. Answers are at the bottom of the column.

  1. In order for your spouse to be entitled to continue federal health insurance after your retirement, they must have been covered for five years before you retired.
  2. Federal retirees do not have to enroll in Medicare Part B when they reach age 65. Their Federal Employees Health Benefits Program plan will continue to provide coverage...