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I currently work for the federal government and participate in the FERS (Federal Employees Retirement System) retirement system which is a defined benefit plan, but also in the TPS (Thrift Savings Plan), which is basically the federal government version of the 401K or 403B. I've been paying into both for a little over six years. When I transition into state government I will have the opportunity to purchase credit in the state pension system so that I'm not starting from scratch in terms of years of service. I've calculated that purchasing six years of service (which would allow me to retire 24 years from now instead of 30) would cost about $22,000. I am waiting to hear back from someone in payroll and benefits at my current job to see how much it would be, but my FERS refund will not be nearly that much-maybe $3,000? However, I have nearly $30,000 in my TSP account. Could I use a portion (or all) of that to purchase service credit? Would there be tax penalties for doing so?
Badfish, I would not cash out of the FERS pension or the TSP to invest in the state plan (at least for now) for a couple of reasons.
First, how sure are you that you will be spending the rest of your working life working for a state? States go through economic cycles, too, and most of them are required to balance the budget each year, unlike the federal government. You could be laid off, or family considerations could make you move out of the area. You have yet to begin working for the state, so you don't know how good or bad the working environment is. Also, some states allow you to "buy" service time throughout your working life, and not only when you first join. While the "price" of buying those six years would probably go up, I would wait for a few years to make sure that you really do plan on spending the rest of your life there. You're not looking at working for 2 more years versus working for 8 more years. You're talking about a minimum of 2+ decades either way.
Also, you are currently vested in FERS (have over 5 years of creditable service). Though your pension would currently be pretty miniscule when you reach the retirement age (currently 6 percent of high 3 average), it is something. Also, if sometime later in your working career you resume working for the federal government, you will be adding to the 6 years of time you've already put in.
As for tax penalties for cashing out your TSP, I would consult someone who works in retirement law. Depending on the exact type of plan the state offers, there may be tax penalties. I would advise against cashing it out in general, but especially if you have to pay a penalty of 10% or more.
Does the state you are going to work for only have retirement benefits if you reach 30 years, or are there partial benefits available at earlier dates? Because if the latter, I would also compare the state partial plus federal partial to the state full retirement before deciding which one is truly better.
I don't think the FERS pension is as high as Mike is stating. It's more like 1% of High 3: Computation
I didn't state that clearly. Since the OP has 6 years of service, his current pension would be 6% of his high 3 average (1% per year of service). I did not mean to imply that his pension would be 6% per year of service.
First, how sure are you that you will be spending the rest of your working life working for a state? States go through economic cycles, too, and most of them are required to balance the budget each year, unlike the federal government. You could be laid off, or family considerations could make you move out of the area....
Although unstated on this forum, the OP is a legislative aide in an at-will position. He probably would have more job security in a state government position than he does in his current position working at the pleasure of his Congressional member.
I didn't state that clearly. Since the OP has 6 years of service, his current pension would be 6% of his high 3 average (1% per year of service). I did not mean to imply that his pension would be 6% per year of service.
Gotcha!
Sounds he's a congressional employee so the FERS is better at 1.7% x high 3 x the years of service.
First I agree do not take out the TSP money. Bad JUJU there. Fee of 10% on top of the income tax wipe out a good portion.
2 Do not roll it over. You may go back to FERS and that will be a good start.
3 If your job is not taking out SSA start putting that money in to another fund. You can do it before or after taxes. Either way start that as soon as you are able.
I currently work for the State of Ohio (9.5 years) and will be moving to the VA in the next month. Is there a way for me to transfer my state benefits (service time/pension) into federal benefits? I am looking for information and/or an agency, phone number or web-link to contact to find out if this is possible.
I currently work for the State of Ohio (9.5 years) and will be moving to the VA in the next month. Is there a way for me to transfer my state benefits (service time/pension) into federal benefits? I am looking for information and/or an agency, phone number or web-link to contact to find out if this is possible.
Thank you!
Almost 100% sure the answer is no. Federal is Federal and State is State. The FERS handbook lists the type of creditable civilian service; there may be some limited instances of federal-state cooperation:
With 30-years to go until retirement, buying 6-years now for $22K might not seem that attractive. But, in the context of a significant increase in a lifetime pension down the road ... it is probably a real bargain worth considering. Even if you don't stay with the state, you will still have the vested amount in a roll-over.
When we were just getting started (about your age), we moved a couple of times and each time withdrew my wife's State Teacher's pension (about 4-6 years). At one point, we had the opportunity to buy those years back for about $40K, but, declined. Upon retiring, it turns out that those 4-6 years would have been worth another $600-750 (prox. per month).... except, we could no longer buy them back.
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Good advice
