Federal Employees – More of your Questions Answered!

9.5.25: Audio automatically transcribed by Sonix

9.5.25: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Welcome back to the federal retirement Show. I'm your host, Val Majewski with American Benefits Exchange. And as always, really appreciate you taking time out of your busy schedule to view our content because this is meant for you, the federal employee that's looking for information regarding your benefits and retirement situation. And that's what we're here for. That's what our area of expertise is, is educating and training federal employees, just like you, on benefits and retirement so you can make the best decisions as you go through your working career and as you enter retirement, and as we do every now and then, um, we have a question and answer session. And as we see questions that come in over time, we want to make sure that you're aware of what other federal employees, just like you are, are asking. And maybe this is a question that you have, maybe some of the questions in here you've been pondering. You've been looking for information. You've been doing Google searches, you've been asking ChatGPT all of these things, and you want to know what direction you should go into. Now, before we do that, if you like our channel, if you like the show, please just get notified about when new content is coming up. You can subscribe. You can share it with others. You can view it on all of the different platforms, whether it's on YouTube, SoundCloud, Spotify, Apple Podcasts. I've heard and seen of listeners all over the world, all over the world, and had conversations recently with people that are overseas working on different military installations, and they're saying, hey, I really appreciate the show, really appreciate the content.

Speaker1:
I'm an avid listener. I listen all the time and that is great. Love the fact that it's spreading around the world, the federal employees that are looking for and seeking for information. So if you do like the show again, subscribe. Get notified when we have a new episode and share it with others. All the federal employees that you work with need to know this information and hopefully there's something in here for everybody, because we have nearly 150 episodes for you to go back and view, and there's all that great content that we put out there. Again, it is for you. It's not. So I could be up here and talk this. I'm certainly not a famous person or radio personality or anything like that. I just want to give information. I want to share my expertise with you and and hopefully it helps you make decisions along the way for you and your family. So today is more of your questions. There have been conversations that I'm having with federal employees. There are questions that are being asked, and perhaps these are questions that you have as well. And sometimes these questions, we repeat them because they're important. Now some questions again I try to keep um, where we're not repeating it all the time.

Speaker1:
But if if a federal employee is asking this question over and over and over, we get a lot of these questions, then I want to make sure that we answer it. We want to make sure that that content remains fresh and that you get a chance to see the answer. Okay. So we're going to dive in today and we're going to go into your questions and conversations that I've had with federal employees. And again, I want to make sure you understand the answers to these questions are are based on my experience, right. Based on my experience working with federal employees, they are really my opinion. You take the information and make the best decisions for you and your family. Because I can't say there is a blanket one way to do everything. Answer right? So it's just because I answer it a certain way, or the the answer that I gave to a certain federal employee may not be exactly how you should do it. So take all the information in so you can make the best decision. Again, this is, in my opinion, how these questions should be answered. But take from it what you may and utilize it as best you can in your situation. Now, if your situation requires further a further deep dive right or further discussion, then go to our website, Federal Retirement Show.com fill out the form and one of our experts. If it's not me personally, we'll reach out to you and can answer your further questions and can take a look at your entire situation, map everything out and ensure you're going in the right direction.

Speaker1:
So today's answers are kind of general in nature. If you have specific questions beyond that, please reach out to us. Let us review your situation with you. So what is our first question? First question. And this is I got this. This is a general idea, right? General conversation that we've had with federal employees. But what are the biggest mistakes federal employees make when planning for retirement? Now I get this question more. When I give a presentation in front of federal employees. It's not that an individual person, when I'm reviewing their situation, is going to ask me, what are the mistakes federal employees are making? But what I'm giving a conference presentation or doing a workshop or doing a benefits briefing, people tend to ask, what are some of those mistakes federal employees make and what are the biggest mistakes now? I did create a pamphlet. Create an e-book, if you will, called The Top ten mistakes federal employees make, and then hopefully the information there can help you avoid them. If you want that pamphlet, reach out to us again. We can get that in your hands. But it's and I'll stop there a second. I said top ten. It's not the only ten mistakes federal employees make is just the top ten, in my opinion, that I've seen over the years that federal employees make.

Speaker1:
Now, if you're asking me what is the biggest mistake that federal employees make, it's never taking that step. Now, if you're watching this show, you've taken a step in the right direction of saying, I want to learn more about my benefits. I want to learn more about my retirement situation. The biggest mistake that I see federal employees make is never getting a full review of their benefits done early enough. Now, you may get a review done at any time. And I will say this it's never too early. It's never too late. But I wish every federal employee, as soon as they get hired, would learn all of this information. So you could be set up right your entire working career. You can understand all the variables. So the biggest mistake that I see people make, and it boils down to this is a false sense of security. False sense of security. What do I mean by that? I see a lot where people have been told over the years, hey, work for the government. It's a great job. It's a great opportunity. You can get a pension, you can contribute to your 401 K, a good job security, all of these things that I've heard over the years that working or that come with working for the government, but there's a false sense of security attached to that.

Speaker1:
Meaning people think I'm going to work my time, I'm going to put my 30 years in or whatever the amount is. I'm going to get my gold watch and I'm going to retire. And that's not always the case. Right? That's not it's not always that easy. The government's not going to just take care of you. And that's where that false sense of security comes in. I'm set. I work for the government. I put my time in, I'm going to get my pension. The government's going to take care of me. I'm going to be set for the rest of my life. That is not entirely true. There are some circumstances where that might work out, but it's not entirely true. You have to do something. You have to take action. You have to make sure you're set up properly. You have to utilize and maximize everything that the government gives you. They give you a great opportunity, but it's up to you to take advantage of it, to maximize it. So the biggest mistake that I see federal employees make, again, false sense of security, not taking any action to review their benefits, to educate themselves on this stuff. They sign up, they go to work, and they go through their career knowing, hey, I can retire at a certain point and I'll be fine. You have to take action. You have to do something. You have to maximize your benefits. You have to do something to get that all taken care of.

Speaker1:
So when you do retire and you walk out of there with your head held high, knowing 100% that it's going to be fine. It's not a guess. It's not a I hope the government will take care of me. I hope it'll be okay. So I'll reiterate again, the biggest mistake that I see federal employees make. There's a false sense of security and there's inaction. There's they don't take that step to do a benefits review. They don't go to a retirement workshop. They don't take the time to review or watch the federal retirement show or or look up information on how to better themselves with their retirement situation. You have to do something, and I advise talk to an expert, talk to an individual who knows about this stuff and can review your situation one on one. Right. A lot of people, they're not going to do their own tax work. You're not going to do your own medical work. Go to somebody who's an expert in federal employee retirement and let them guide you through your situation. So that is the biggest mistake that I see federal employees make. Question number two. And this comes a lot with, um, people getting into debt. And there's a lot of ways in which you can get into debt. And there's a lot of ways in which you can get out of debt. But I've had this question come up before where people said, hey, I've got a lot of credit card debt or I've got XYZ debt.

Speaker1:
Should I take a loan from my TSB or even a hardship withdrawal from my TSB to pay off debt? Now there's a lot in there. So I'm going to again speak in general. In general depends on the type of debt depends on the situation. Now normally I'm going to go to the second part of this question. I will not advise normally to take a hardship withdrawal. A hardship withdrawal means you're not eligible to take an in service withdrawal because you're not yet age 59.5 and you want to withdraw money, not borrow money like a loan. Uh, what a loan means, right? It's borrowing money, a withdrawal on taking the money. You don't have to pay it back. But if you take a hardship withdrawal, there's a lot of documentation that needs to be provided. You have to show that you're either in a negative monthly cash flow situation that you've had, uh, casualty losses, medical bills, legal fees, whatever it might be that puts you in this hardship and you qualify for it. Now, there there is a penalty involved with it. Two kind of penalties. Uh, number one, you're going to pay taxes on it. That's not the penalty because it's a withdrawal of your TSB. But the first penalty is the IRS penalty 10% for being under the age of 59.5, and then two is that TSB is not going to allow you to contribute back into your account for a period of time because you've taken this hardship withdrawal.

Speaker1:
So not something I normally recommend if you're in a dire situation and there's no other way. Maybe. But the loan in these two options could be a better way to go. Now, why is that the the loan is borrowing money from TSB, then paying it back with interest, or you're paying yourself back with interest. Now what is the interest rate on a TSB loan? It is generally the same percentage that is being paid out by the G fund. Now the G fund typically pays out a pretty low percentage as far as interest earned on an annual basis, so the loan rate could be lower than what you're paying in whatever debt that you've accumulated, especially if it's a credit card and it can be upwards of 25, 30% interest, you know, 29.99%, I've seen that you could be paying and that could snowball and compound on itself and become a huge problem. So if people are thinking, well, I'm taking out a loan to pay off a loan or taking out a loan to pay off debt, yes. It's not an easy fix. It's not a, you know, the simplest thing ever because you are still going to be paying some interest. The best thing is to not get into debt in the first place. But if you are, perhaps this is a thing that you can utilise because the interest that you pay on the TSB loan could be cheaper than the interest that you're paying on the debt that you've accumulated.

Speaker1:
Now, the bigger part of this is just not to go back into debt if you do that. This is not a get out of jail free card. It's not, oh, I've done this once and now I can accumulate all this debt again and I can go back into debt because I can always keep pulling for my TSB. No, I don't want you to do that because your TSB is your retirement nest egg. Okay. Understand it's borrowing. You're not withdrawing money out of your TSB, but that loan does have to be paid back. And if you retire with an active loan, then you can either take a taxable distribution or have to pay back that entire loan. So just understand, you know, the loan is an option to get you out of a tough situation. It's not an end all, be all. The biggest thing is, you know, from a financial planning standpoint is let's not get into crazy debt to begin with. But if you're already there and unfortunately, there's a lot of folks that I talk to that are this is an option, not the end result or not the only result or the only solution to the problem, but it is a potential option if it's going to save you interest over time.

Speaker1:
Now, when you make repayments back, it's going to come normally as payroll deduction. It's going to be taken right out of your paycheck. And you've got to pay out pay back a general loan within a five year period. So you can make automatic payments. You can pay back your TSB loan. Um let's use this though as a as a last option. Let's try to get out of debt the the old fashioned way, um, without having to take another loan from your TSB. If you can pay it back over time, you can, uh, get that balance down properly. That's something that we can discuss. If you've got a lot of debt, you want to figure out a way to get rid of it. Let's sit down. Let's go over it. Let's map out a plan for you. Okay. Question number three. Now how does FB or federal employee health benefits and Medicare coexist while working and while retired? We get this a lot because people hear varying information, right? They want to make sense of this. And we've done episodes on this where we've talked about how FB and Medicare coexist. And I'll keep this answer pretty simple. All right. Fb for federal employee health benefits and Medicare will coexist in two ways. Once you turn age 65. It depends on whether you're working or whether you're retired. So way number one, if you're still working, you're still actively employed by the federal government.

Speaker1:
You have both FB and Medicare. When you turn 65, um, FB is your primary while you're working and Medicare becomes your secondary. Okay. Whether you just have part A or you've got both part A and part B, that's a totally different discussion of whether or not you're going to utilize both part A and part B, or just take part A, but, um, how do they coexist while you're working? Rfbs your primary Medicare is your secondary. When you retire or separate from service, it is switched, it flips Fhlbb now becomes your secondary and Medicare is your primary. In retirement, they will work together, but it just depends on which one's going to act as the primary depends on whether or not you are working. So that's the simplest answer when it comes to how they coexist while you're working and when you retire. Okay. Question number four here. How do I withdraw from funds from my TSP without being taxed? Unfortunately. Um, there's a that's a well, let's back up here a second. Let's talk about two things. How do I withdraw money from my TSP without being taxed? It depends on where the money is coming from. Now the only way to take money from your TSP, uh, without it being taxed is if the money's coming from the Roth portion of your TSP. So going towards the beginning, in order to have tax free dollars in your TSP or not be taxed on a distribution from your TSP, you've had to make the decision to put money into the Roth or the Roth bucket of your TSP.

Speaker1:
Now, if I was reading into this question at the beginning where it says, how can I withdraw money from my TSP without being taxed? I'm thinking it's coming from from the spirit of this question, saying, how do I take my taxable money and withdraw it without being taxed? Unfortunately, right now, if you were to take money from the traditional bucket of your TSP, there's no way we can take it out of TSP without being taxed. Okay, you cannot convert it at this present time from the traditional bucket of TSP to Roth. Okay. That has to be done outside of TSP. So if you have money in the traditional bucket of TSP and you withdraw it, Right. Withdraw money from the traditional bucket. It will be subject to tax. Now there's another thing. We can change the word here. Withdraw to transfer. How can I transfer or roll over money from my TSB without being taxed? That's an easier answer. You can say, okay, I could take the money from my traditional bucket and I can transfer it or roll it over into my own IRA, my own IRA. Now, in order to move the traditional money from TSB and not be taxed, it has to go into a traditional IRA. There's a lot of different options out there for you when it comes to what type of IRA you want to put it into, but it has to be labeled as a traditional IRA.

Speaker1:
Now, if you're going to transfer or roll over the Roth portion of TSB, that's going to have to go into a Roth IRA. Okay. So you can withdraw money from TSB, whether it's traditional or Roth, the withdrawal from traditional is going to be subject to tax. We can't avoid that. But if you transfer rollover over money from TSB and it goes from like to like. It's the traditional bucket goes to a traditional IRA or the Roth bucket goes to a Roth IRA. There's no taxes, fees, transfer costs or anything like that if it's done properly. Now, the other part of this is how do I turn my traditional money into Roth, right. I'm going to answer another question in here. How do I transfer or convert my traditional money to Roth? Now, currently you can't do that with NTSB. That will come about soon enough. And we'll do an episode about that when it happens on how that process works. But the only way to take taxable money now and turn it into tax free money is to do a Roth conversion. Roth conversion. Now, what are the good news is with Roth conversions. Well, here I'm going to go to the next question because I know what it is. Um, what are your thoughts on the TSP Roth or converting funds to Roth? And I was leading us there because they kind of they went hand in hand And, uh, some people ask me and they say, hey, how do I make more of my money tax free? Or how do I prevent my money from being taxed more in the future? Well, you have to prepay the taxes now.

Speaker1:
Prepay the taxes now, what do I mean by that? I mean, if you're going to put money into the Roth portion of your TSB, you pay the tax today. The money goes in to the Roth portion and it grows and hopefully with interest that you earn over time, that money grows to a lot more. So you put a little bit in over time it grows to a lot more. And in the end, if it's in the Roth, it is not subject to any more tax. It is not subject to a double tax or a future tax, or the interest that you earned on it is not taxed. It's all tax free in the end. And so would you rather pay tax on a little in the beginning and let it grow to be a lot? Or would you rather get a tax deduction on a little today. Let it grow to be a lot. And now you're going to pay tax on the entire thing. And that's how the traditional bucket works right. You put money in the traditional bucket.

Speaker1:
You get a tax deduction today. You're not taxed. It's, you know, lessens your taxable income. That money hopefully will grow over time with interest and all the earnings. Then when you withdraw the money in the end, all the interest, all the earnings, all the money you put in is taxed as ordinary income. So I'm a fan of paying a tax on a little today and letting it grow to be a lot in the future. And I don't know any tax on any of that. Pretty awesome there. Now, what if I do have a traditional portion that I didn't realize that I could put it? I could do the Roth, I just I built it all up in the traditional, how do I stop paying more tax than I have to today? You can convert that money to Roth now. Why would it stop you from paying more tax? Because as that money grows over time, I'm just building up this bigger and bigger tax bomb for myself. Now, this is again my opinion on this. I like tax free income. I like the fact that Uncle Sam, for the Roth portions of my account, can't touch the Roth portions. He's already gotten his piece of the pie. I've already paid him his money, and now all that money is going to come to me. So if you already built up this traditional portion and how do we do that? How do we change it from taxable to tax free? You have to convert it.

Speaker1:
Now what's the good news with converting. We can snap our fingers and we can say Abracadabra. This money went from traditional taxable money to now tax free instantly. Boom again. Abracadabra. Wave the magic wand. What's the problem with it? You have to pay the tax on the amount that you converted. And you have to. At the end of the year, if you're under 59.5 at this time, then you're going to have to come out of pocket to pay that tax on the converted amount. So that's the negative of it. You've got to pay this tax bill at the end of the year. But going forward you have now that tax free money and it's going to earn interest and build on itself and hopefully now grow to be even more. And you've prepaid the tax got Uncle Sam out of your pocket. Pretty awesome stuff there. I'm a big proponent. I like, um, tax free dollars. I like having less to owe the government in retirement. You're in a little more control there. But that's my opinion. Again, some other people have other opinions and saying, hey, you know, defer the taxes as long as you can build this up on a tax free basis. That's up to you. Uh, or sorry, on a taxable basis or a tax deductible basis. Today I'm a fan of tax free dollars in retirement.

Speaker1:
Just my opinion there. So when it comes to the questions that you have, hopefully those are some of the things that were interesting or you thought were interesting or something you were interested in. If you have other questions, if there are other things that we did not cover on any of the FAQ's or any of the questions sessions that we've gone over, reach out to us again. Go to our website, Federal retirement Show.com fill out the form. One of our experts will be in touch with you and we'll get all of your questions answered, not just the one or the two. We'll dive into your full situation, give you a number of reports so you can see exactly where you stand, and we'll share with you some guidance as to how to improve your situation. Ensure that you're going in the right direction so you can retire how you want, when you want, with the lifestyle that you want to enjoy in retirement. It's your working career. Take advantage of everything the government gives you so you can be properly set up down the road. So I really, again, appreciate you taking the time out of your busy schedule to view our content. Be sure to share us with your colleagues. Do not keep us a secret. We want to impact and get this information to as many federal employees as we possibly can. I'm Val Majewski with American Benefits Exchange. You've been watching the federal retirement show and look forward to seeing you on a future episode.

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