Feds' savings options, and a calculator

A Reader Writes:

I have heard that in addition to the Thrift Savings Plan, there is another federal government plan for employees saving for retirement that also has some tax advantages. Can you provide any information on this?

Milt Replies:

Employees covered by the Civil Service Retirement System or the CSRS Offset provision can make voluntary, additional payments to the retirement system for the purpose of purchasing an additional annuity. An employee who is covered by the Federal Employees Retirement System may not open a voluntary contributions account.

Voluntary contributions earn a variable interest rate determined by the Treasury Department each calendar year. The interest rate for calendar year 2002 is 5.5 percent.

Contributions may be made in multiples of $25 ($25, $50, $75, etc.), and total contributions may not exceed 10 percent of the total basic pay you received during all of your federal service. The 10 percent limit applies at each point of time that a deposit is made and is not based upon a projection of lifetime earnings.

Regarding taxes, if you take a refund of voluntary contributions, any accrued interest is taxable in the tax year in which you receive it. In addition, if you receive the refund before you attain age 59 1/2, the interest portion of the refund is subject to an additional 10 percent early distribution tax. Payments to survivors are not subject to the 10 percent tax.

If you receive an additional annuity as a result of your voluntary contributions, it will be taxed. Please refer to the General Information section of IRS Publication 721 (Tax Guide to U.S. Civil Service Benefits) for further guidance. To defer income tax, you can elect to roll over the interest to an individual retirement account or other qualified retirement plan.

To make voluntary contributions, you must file a Standard Form 2804 (Application to Make Voluntary Contributions) with your agency personnel office. After the application is forwarded to OPM by your agency and approved, OPM will assign you an account number, and send instructions for making contributions.

More information is available at the OPM site.

A Reader Writes:

I enjoy your column and read it religiously. That said, do you know if you can count Thrift Savings Plan losses on your income taxes if you switch, say, $10,000 out of the C fund into the G fund to get an approximate $3,000 loss?

Milt Replies:

Unfortunately, you can't.

A Reader Writes:

In your Aug. 30 column, you included a mention of the new FedBens retirement benefits calculator program. I thought you would like to know of an important enhancement: a calculator for military deposits.

Again, readers can access the program — entirely free and without restrictions — at www.fedbens.com.

Because this may be the first time some people have heard of this, the comment period has been extended through Oct. 21.

Zall is a retired federal employee who since 1987 has written the Bureaucratus column for Federal Computer Week. He can be reached at milt.zall@verizon.net.