Posted on Friday, 17th March 2023 by Dennis Damp

Savings bonds as featured in my article titled, “I and EE Savings Bonds – Safe, Simple, and Affordable” can be used to finance children’s education, supplement future retirement income, or save for a rainy day, all are backed by the full faith and credit of the United States.

Many are unaware of the tax-free components of Savings Bonds. The Interest earned is tax deferred until you cash them in. If used for education, the tax is waived in certain situations, and they aren’t subject to State taxes.

Tax Deferred Earnings

You can defer reporting the interest until you file a federal income tax return for the year in which you cash them in. Another option is to report the interest yearly even though you don’t receive the interest until the bond is redeemed.

Most defer reporting the interest until they cash in their savings bonds. A Form 1099-INT form will be sent by the financial institution that cashed your bonds. This form is downloadable from your Treasury Direct account for bonds held in your online account.

Reporting interest annually

I defer reporting earned interest until I cash in my bonds to avoid the additional paperwork involved. If you pay the tax annually on the interest earned for that year, you have to look up the year’s interest for each of your bonds and report it on your tax return. You’ll only receive a 1099 INT for the total amount of interest when you eventually redeem the bond.

Your tax return must be annotated the year you redeem the bond to reflect that you already paid most of the taxes and don’t owe tax on the full amount. Keep all of your old tax returns to prove the taxes were paid.

Treasury Direct account holders can view the interest earned each year in their account. Those with paper savings bonds can use the Savings Bond Calculator to determine the interest earned in any given year. Use IRS publication 550 instructions for reporting savings bond interest annually.

Another consideration, if you decide to change from one method to the other you have to file IRS Form 3115 to make the change.

Advantages of Paying Interest Annually

Paying the tax at maturity or cashing in a number of bonds for a specific purpose before maturity will increase your Adjusted Gross Income for that year if you go the tax deferred route, which most do. The maximum you can purchase in I or EE bonds each year is $10,000, if you wait until maturity the bonds will more than double in value.

This increased income for savings bonds that interest was deferred could push you into a higher tax bracket or potentially increase your (MAGI) Medicare Part B and D premiums in the upcoming year. The additional income could possibly make you ineligible for certain income-based benefits.

Education Exclusion

You may be able to exclude from income all or part of the interest you receive on the redemption of qualified U.S. savings bonds during the year if you pay qualified higher education expenses during the same year. This exclusion is known as the Education Savings Bond Program.

Qualified U.S. savings bonds

A qualified U.S. savings bond is a Series EE bond issued after 1989 or a Series I bond. The bond must be issued either in your name (sole owner) or in your and your spouse’s names (co-owners). You must be at least 24 years old before the bond’s issue date.

Qualified Expenses

Parents may be able to pay some or all of their child’s higher education tuition with their savings bonds without paying taxes on the earnings.

Qualified higher educational expenses are tuition and fees required for you, your spouse, or your dependent to attend an eligible educational institution. Qualified expenses include any contribution you make to a qualified tuition program or to a Coverdell education savings account.

Qualified expenses do not include expenses for room and board or for courses involving sports, games, or hobbies that are not part of a degree or certificate granting program.

When I first realized you could do this, I thought it also applied to non-dependent grandchildren as well. Unfortunately, it doesn’t.

Recovering Lost or Missing Savings Bonds & Treasuries

According to the U.S. Treasury Department there is $29 billion in unredeemed savings bonds! They are just waiting to be found by their owners or heirs and the Treasury will help you with your search.

Treasury Hunt is the Treasury’s online search tool for finding matured savings bonds or missing interest. You can use this service if you or a loved one who died had savings bonds or other Treasury securities that are no longer earning interest, but haven’t been cashed.

It also covers missing interest or other payments on HH savings bonds or other Treasury securities. Just enter the person’s Social Security Number and state of residence. Dots will show on the form for the Social Security Number to protect your privacy.

Visit https://www.treasurydirect.gov/savings-bonds/treasury-hunt/ to use this form. If you find bonds or other securities that match your information, you’ll get instructions on how to proceed.

Another option to recover lost savings bonds is to visit the Treasury Direct website and fill out Form 1048: Claim for Lost, Stolen, or Destroyed United States Savings Bonds.

The more information such as the serial numbers, bond face values, the name and social security number of the person on the bond, the greater chance of success.

More than likely, you won’t have all of the details unless written records are available. The Treasury can likely find the bond records as long as you know some of the details.

Summary

Interest deferral along with no state taxes, and the possibility of using your bonds for education to eliminate taxes on your bonds, all make savings bonds a compelling investment option. The current 6.8% yield on I Bonds is exceptional and EE bonds, currently yielding 2.1%, are guaranteed to double to face value after 20 years.

Many 529 college funds are invested in the stock market and subject to losses during recessions and uncertain times. My EE bonds averaged 4.8%, and my I bonds averaged 5.85% over the past 30 years. The S&P 500 return from 1993 through 2022 was 7.52%. Savings bonds are not subject to market volatility and will be there when you need them.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Medicare Guide
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Tags: EE Bonds, I Bonds, Lost Savings Bonds, Savings Bonds, Tax Free Interest
Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 10th March 2023 by Dennis Damp

Savings bonds received a boost in popularity last year due to their inflation indexed I-Bond’s exceptional interest rates, currently 6.89%. Far exceeding what most investments are paying today. Their previous six-month yield was 9.62%!

A former associate reviewed savings bond interest rates for his payroll deduction purchases from 2001 to 2007.  His 2001 bonds are paying 10.23%. Most were yielding 8 to 9.5% in the other years, with a few at 4.5 to 5.5 percent.

The I-Bonds issued in the late 1990s and early 2000s had a 3% fixed rate, today’s fixed rate is .4%, the reason for the much higher yield at the beginning of the 21st century. My I-Bonds during this period are earning from 8.54% to 13.08%!

Paper Verses Online Bond Purchases

The Treasury stopped issuing paper bonds on January 1, 2012 and savings bonds soon fell out of favor. Most were skeptical of the new online book entry system, myself included. The only way to purchase paper I-Bonds today is with your IRS tax return. They allow those receiving a tax refund to use up to $5,000 of their refund to purchase paper I-bonds.  All other savings bond purchases must be processed online at www.TreasuryDirect.gov.

Once you get familiar with Treasury Direct (TD) and understand the process, it isn’t all that difficult and there are advantages to having the bonds in a book entry system.

Advantages of the Online System

1. Savings bonds mature after 30 years. If you hold paper bonds and don’t cash them in, they stop earing interest. When bonds are held in your Treasury Direct account, they automatically cash them in at maturity and return the funds to your designated bank account.
2. You can easily manage your online bonds including changing registration, beneficiaries, and track your bond portfolio’s basis and interest for all bonds and individually.
3. You can buy and cash in your savings bonds whenever desired as long as you hold them for at least a year. Funds are electronically withdrawn or deposited to your designated bank account.
4. The Treasury issues a downloadable 1099 INT form for redeemed bonds; you don’t have to claim the interest until they are cashed in, the same with paper bonds that you may have.
5. Once you open your TD account you will be able to purchase Treasury Bills, Notes and Bonds. Short term Treasury Bills are paying around 5% today.
6. You can send your paper bonds to the Treasury and they will add them to your online account.
7. Paper bonds can easily be lost and forgotten. Once in an online TD account, and you include your account information in our estate plans, heirs would be able to access them.
8. The process to cash-in paper bonds can be cumbersome. You must retrieve them from your safety deposit box, then to a teller to cash them in or deposit the money in your account. Online, just a few key strokes and you’re done; the next day the funds are deposited to your account.

On the flip side, paper bonds were ideal for gifting to our children, grandchildren and others. Today, each person you gift to must have an online TD account. Most forgo the process and give cash to their parents for the child’s 529 or bank savings account. Also, one in the hand is worth two in the bush. A paper bond is tangible, you can take bonds to most local banks, as I did last week, and cash them in.

The Registration Dilemma

The Treasury allows registration as an owner WITH another party or as a primary owner with one designated beneficiary. I don’t know why they limit the number of beneficiaries.

Co-owner & Beneficiary Registration

You can register your bonds in your name WITH your spouse or any other person. The bond can be cashed by either party.

It’s recommended to leave instructions for your executors, after one of the co-owners dies, to change the registrations for the joint account to the survivor and change bond registrations to whatever beneficiaries are desired for the remaining bonds in the account.

To get around not having the ability to select more than one beneficiary, you can register the bonds in your name with different beneficiaries for each of your online bonds as desired.

It’s easy to change registration online with your Treasury Direct Account. All you do is add the registrations you want and then change your current bonds to the new registration. For paper bonds, you have to send them into the Treasury and they will put them into your Treasury Direct Account with the desired registration.

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EE Savings Bonds

Today EE bonds are yielding 2.10% and they are purchased at half their face value and there is a $10,000 yearly purchase limit. The Treasury guarantees the EE bonds will double to face value in 20 years for an effective yield of 3 percent.

You must hold them for at least one full year before cashing them in; if you cash them in before 5 years, you lose 3 months of interest.

I recently cashed in several matured 30-year EE paper bonds. One of the bonds I turned in cost $250; I received $1,036.80 for a compounded yield of 4.8%. Interest compounds semiannually. The following screen shot shows one of the EE bonds I cashed in; I used the Treasury’s Savings Bond Calculator to confirm the amount I would receive before going to the bank. It was spot on to the penny.

30 Year EE Bond Interest

I-bonds earn interest monthly. Interest is compounded semiannually; every 6 months the Treasury applies the bond’s interest rate to a new principal value. The new principal is the sum of the prior principal and the interest earned in the previous 6 months.

A $200 denomination I-Bond I purchased in July of 1999 is now worth $774.40 today providing a compounded yield of approximately 5.85%. This bond is now earning 9.89% and this July the yield will drop to 6.89% for the next six months.

I Bond purchases are limited to $10,000 yearly per account holder through Treasury Direct. Both you and your spouse can purchase up to this limit if you have individual accounts. At tax time, you can elect to buy up to an additional $5,000 in paper I-bonds with your tax return.

You can cash in (redeem) your I bond after 12 months. However, if you cash in the bond in less than 5 years, you lose the last 3 months of interest. For example, if you cash in the bond after 22 months, you get the first 19 months of interest.

Cashing in Your Bonds

A newsletter subscriber had a problem cashing in a deceased relative’s savings bond. If the bond holder didn’t designate a beneficiary or that person died, it can be a problem. Also, his son’s bank and credit union wouldn’t redeem paper bonds. This is becoming more common these days.

My local bank and credit union still redeem savings bonds. They gave me a detailed receipt for the matured bonds I cashed in last week showing the redemption amount and total interest earned. They will send 1099-INT forms for 2023 early next year. Savings bonds redeemed through your online TD account produce a downloadable 1099-INT form.

If you can’t find a local financial institution to take your paper bonds you will have to send them to the Treasury to redeem.

Buying Your First Classic Car

Tracking Your Bonds

I use the Treasury’s Savings Bond Calculator to track EE and I-Bonds, paper and online purchases even though the Treasury advises users not to add online bonds to the calculator. Actually, you don’t have to track bonds you purchased online since they are already accounted for within your account; you should print out a copy of all of your bonds for your records.

I added my online bonds so that I have a complete central list of all savings bonds we own. You can only add an I-Bond up to $5,000 on the calculator. If you purchase the maximum amount break it down into two lots and label them the savings bond serial number 1 and 2.  For example, if your serial number is IABBA, enter $5,000 with serial number IABBA-1 and IABBA-2. The data base file works fine with these designations.

Once you added all of your bonds you must save the file and only a few browsers actually work. I use Firefox since Microsoft stopped supporting Internet Explore. The program does not work with Google Chrome or Microsoft Edge. Firefox is a free download if needed.

An image of the calculator is located above under EE Savings Bonds. To save your compiled file click on “How to Save Your Inventory” and follow the guidance for your browser. It’s easy to do, it just takes a few times doing it to get accustom to the routine. Every time I buy or sell bonds I add or remove them from my list and save the new file under my desktop so it is always there to review monthly.

Another nice feature of this calculator, when new rates are announced in November and May you can go six months out to determine what your account is worth to those dates.

Summary

Savings bonds aren’t glamorous like the high-flying stocks of today and may not earn you the most long-term, but they are safe, simple, and affordable. When an investment is out of sight and mind, it will be there when needed to bail you out during hard times.

The compounded yield of my matured 30 year EE bonds, that I just cashed in, was 4.8%. One of my oldest I-Bonds compounded yield from 1999 to the present was 5.85%. Not bad considering that the average annualized S&P 500 return for the past 30 years, 1993 through 2022, was 7.52%. Another advantage is tax deferred earnings until cashed and your earnings aren’t subject to state taxes.

I encourage those still employed and planning their retirement to consider purchasing savings bonds through payroll deduction as I did throughout my career. It will make a difference later in life and you can start small and watch it grow. Retirees that can afford to purchase I-bonds, now is a good time to invest in them as well, you just can’t cash them in for the first year.

When the market is gyrating, as it is now, you will sleep better at night knowing a portion of your savings are stored safely away.  Here are two articles that you may find helpful;

• Which Way is Up – A Retiree’s Conundrum
• Is the Stock Market Keeping You Up at Night?

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Medicare Guide
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Tags: EE Bonds, I Bonds, Savings Bond Purchasing Limits, Savings Bonds
Posted in BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 24th February 2023 by Dennis Damp

Forward this to others that may find this information helpful.
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I receive many FEGLI insurance coverage questions throughout the year. Especially from those working on their retirement paperwork and require coverage clarifications. One subscriber recently asked if FEGLI is considered term insurance, if so, does the term expire at a given age? Others are paying high Part B premiums and aren’t sure they can continue paying them, especially in retirement on a fixed income.

The Federal Employees Group Life Insurance (FEGLI) program offers group term life insurance protection; the policies don’t build cash or paid-up value. It doesn’t expire unless you cancel coverage.

Before selecting what options to carry into retirement, evaluate your insurance needs to make prudent FEGLI election decisions. Annuitants should perform the same analysis to determine if they are under or over insured before reducing or canceling coverage.

FEGLI CONSIDERATIONS

What FEGLI insurance options to carry into retirement is a critical issue for employees planning their retirement. Making uninformed decisions could either leave your family with burdensome debt down the road or negatively impact your monthly income for you and your spouse.

New hires and younger employees often take their FEGLI coverage for granted until later in their careers. Typically, life insurance is the last thing on millennial’s, those in their twenty and thirty-somethings, mind. When approaching retirement insurance takes on a new meaning, especially for those who we will eventually leave behind.

This article covers your FEGLI options, life event changes, and how to cancel coverage if desired for active employees and annuitants.

FEGLI OPTIONS

Basic

FEGLI Basic insurance costs are reasonable and if you are under age 45, you automatically have extra coverage without paying any additional premium. This Extra Benefit increases the amount of Basic insurance payable at the time of your death. If you are age 35 and earning $64,875 a year, your Basic Insurance Amount (BIA) is $67,000, $2,000 over your annual base salary rounded up to the next thousand dollars. At no additional cost, the policy holder’s Basic coverage doubles to $134,000!

From age 35 to 44 the extra amount reduces each year until it stops at age 45. If you are in this age group and would like to know what your total coverage would be, use OPM’s FEGLI Calculator. It provides the exact amount of coverage for every scenario.

If the death is accidental, an additional $67,000 for a total of $201,000 would be paid out! The premium for this coverage is a meager 16 cents per thousand or $10.72 biweekly at any age while working. A good deal by any standard.

Accidental Death and Dismemberment coverage provides additional funds in the event of a fatal accident or an accident that results in the loss of a limb or eyesight. For benefits to be paid, the loss must occur not more than one year after the accident and be a direct result of bodily injury sustained from that accident, independent of all other causes. AD&D Insurance is provided at no additional cost. Accidental Death & Dismemberment coverage is an automatic part of Basic and Option A insurance for employees.

You can elect a 75%, 50% or no reduction when retiring. The 75% reduction is free starting on the first month after your 65^th birthday. A Premium of $0.75 per thousand for life with a 50% reduction, and the no reduction cost per thousand of coverage is $2.25 monthly. Retirees can convert to the 75% free reduction at any time.

Part A (Standard)

Part A Standard coverage is a flat $10,000 with an additional $10,000 accidental death coverage if you are under 45. The premiums increase with age however they are relatively low. Most who elect Option A keep it in retirement because at age 65 it’s free. The maximum cost for an annuitant under age 65 is currently $13 a month. At age 65 the insurance reduces 2 percent a month until the coverage decreases to $2,500.

Part B (Salary Multiples)

Part B provides insurance coverage from 1 to 5 salary multiples, and the premiums increase with age. At age 55, with a salary of $95,000, each multiple would cost $0.39 per thousand or $37.05 monthly, five multiples would cost $185.25.

The premiums increase every five years. At 60, the premium increases to $0.867 per thousand or $82.36 per month for each multiple, $411.82 per month for all five! At 80+ the premium maxes out at $6.24 per thousand, that would be $592.80 monthly for each multiple or $2,964 a month in this example! Much too high for most to consider keeping.

Obtain term insurance quotes from private insurance companies prior to retiring to compare costs. Many can’t cancel all of their FEGLI coverage because of health issues. Other insurers typically require a physical.

Another option is to cancel or reduce your number of Part B multiples and consider, before retiring, selecting the no or 75 % reduction of your Basic benefit if that would be enough coverage for you.

Part C (Family)

Family coverage includes $5,000 for a spouse and $2,500 for each child under age 22 in your household. You can elect up to 5 multiples and the premiums adjust as you age. When you retire you elect either a full reduction benefit or no reduction. If you elect full reduction your multiple coverage will stay in force until you reach age 65. At age 65 the premiums stop and your coverage reduces 2% a month for 50 months when coverage ends.

You can elect no reduction and the premium costs per multiple ranges from 52 cents per multiple at age 35-39 to $16.90 per multiple from age 80 and up. If you don’t have private insurance for your spouse, this coverage will fill the gap.

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LIFE EVENTS

All federal employees and annuitants experiencing a life event, no matter where they are at in their career, need to evaluate their insurance needs and fully understand benefit options. This is an ideal time to review and increase your coverage if needed and to obtain life insurance for a spouse and qualifying children. No physicals are required for life event changes.

Retirees

Retirees are only able to change FEGLI beneficiaries, they can’t add family members or elect expanded coverage. However, retirees can make significant changes to their benefits for life events. They can add a new spouse and children to their FEHB program and annuitants can elect to provide a survivor annuity for a new spouse if they do it within the required time period.

Employees

An employee may elect Basic, Option A, B and/or C insurance within 60 days following a FEGLI qualifying life event. These events are: marriage, divorce, spouse’s death, or the adoption of an eligible child. For option B and C, employees may elect up to 5 multiples based on the life event. You have 31 days before the event to 60 days after the event to make changes. After that you must wait for an open season and they are few and far between for the FEGLI program.

Federal employees that marry can add family coverage for FEGLI and FEHB coverage within the time period mentioned above. If you don’t elect FEGLI life insurance coverage for your new spouse and children you will only be able to add coverage if an open season is announced. They seldom offer FEGLI open seasons.

Federal employees that marry can add family coverage for FEGLI and FEHB coverage within the time period mentioned above. If you don’t elect FEGLI life insurance coverage for your new spouse and children you will only be able to add coverage if an open season is announced. They seldom offer FEGLI open seasons.

However, if you neglect to add a spouse and your children to your FEHB health insurance program when you first marry, within the 31 days before to 60-day period after the event, you can always add them to your health plans during the next annual open season.

For more information on life event changes read my article titled Qualifying Life Events, Don’t Lose Your Benefits.

CANCELING or REDUCING COVERAGE

Federal retirees, unless they have assigned their life insurance, may cancel Basic or Optional life insurance coverage at any time. Any cancellation or reduction of life insurance coverage must be in writing and have an original signature by the insured retiree. Include your retirement claim number (CSA number) or social security number and specify what action you want taken. You can’t increase your coverage after retirement, or reinstate any coverage that you cancel.

SUMMARY

Basic coverage, from my perspective, is well worth the cost and most should consider keeping it in retirement. It is a fixed cost and the premiums don’t increase with age like options A, B and C. Plus, I elected the 75% reduction at retirement and when I turned 65 my premiums stopped. The full insurance amount decreased 2% a month until it dropped to 25% of its original value. You can elect to carry 50 or 100 percent of your Basic insurance into retirement. However, you will continue to pay a Basic Premium for that coverage for life.

Confirm Your Coverage & Beneficiaries

Annuitants can review their Blue Book, “Your Federal Retirement Benefits,” to determine what coverage they carried into retirement. My FEGLI benefits are listed on page 9 of this valuable resource. You can obtain updated copies from OPM. Active employees must contact their HR office.

The Blue Book doesn’t list beneficiaries. If you aren’t sure who is listed, contact OPM and consider submitting in an updated SF-2823 beneficiary election form. This is critical for those who divorced or their original benificiaries passed on.

Additional Resources

Use the following links for OPM’s FEGLI Calculator and to view the premium charts for employees and annuitants:

• FEGLI Premiums for Annuitants
• FEGLI Premiums for Employees
• OPM’s FEGLI Calculator

Finally, it all depends on how much coverage you need. In my personal situation I obtained whole life coverage when I was still in my 20s and that insurance, along with the 75% reduced FEGLI Basic insurance, was more than sufficient for us.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Federal Employees Group Life Insurance Guide
• Which Way is Up – A Retiree’s Conundrum
• Is the Stock Market Keeping You Up at Night?
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Tags: Federal Employee Benefits, FEGLI, Insurance
Posted in BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 17th February 2023 by Dennis Damp

Forward this to others that may find this information helpful.
They can sign-up to receive my free Retirement Planning Newsletter.

On December 29, 2022, the Retirement Enhancement (SECURE) 2.0 Act of 2022 was signed into law. This second installation of the 2019 SECURE Act introduces several changes affecting the Thrift Savings Plan. This legislation will directly affect plan participants.

I held off writing an article about these changes until the Thrift Board published guidance on the subject. The TSP is an Individual Retirement Account (IRC) under Internal Revenue Code (IRC) § 401(a). Therefore, certain rules and regulations associated with IRAs and 401 (k) plans may not apply to the TSP.

Required Minimum Distributions (RMDs)

The age required to start RMDs was raised from 72 to 73 starting on January 1, 2023, and then to age 75 starting on January 1, 2033.

Under SECURE 2.0, retirement account holders who turn 72 on or after January 1, 2023, need to begin taking RMDs at age 73. Anyone that turned 72 on or before December 31, 2022, is not affected by this change and needs to continue taking their RMDs as scheduled.

The TSP has issued limited guidance with more to follow including the information in the previous paragraph. However, under the new law, those turning 72 in 2023 can now hold off on taking the first RMD until December 31, 2024―a full year later. You also have the one‐time IRS option to delay that first RMD to no later than April 1, 2025. However, if you exercise that option and wait until April 1, 2025, you’ll be required to take two distributions that year, satisfying your first and second RMD.

Originally, ROTH accounts under the 401(a) laws were subject to RMDs, this has fortunately changed under the new 2022 SECURE Act. TSP Participants are no longer required to take ROTH RMDs prior to the account owner’s death.

Catch-Up Contributions

Changes to participant catch-up contributions begins January 1, 2024. This change allows account holders with wages below $145,000 in the preceding year to choose traditional or Roth accounts for catch-up contributions. Federal payroll offices were notified of these changes.

If the participant’s wages exceed $145,000 in the preceding year, all catch-up contributions must be treated as Roth. Your contributions will not be tax deferred like the traditional 401(a) contributions are.

Beginning on January 1, 2025, the catch-up contribution limit for participants ages 60-63 will be increased to the greater of (1) $10,000 or (2) 50% more than the regular catch-up amount in 2025.

Decreased Penalties

The new law dramatically reduces the penalty for failing to take an RMD down from 50% to 25% of the mandatory withdrawal amount, still high by any standard. However, the penalty drops to 10% if the amount you missed is withdrawn, and file a corrected tax return with the IRS within the applicable period.

I-Bond Update

Rosemary asked if she had to wait a year after purchasing an I-Bond before buying another. She bought one last April and thought she had to wait until April of 2023 to purchase another.

You can buy up to $10,000 each calendar year online through Treasury Direct and an additional $5,000 in paper bonds with your income tax return. Anyone can purchase up to $10,000 in new I-Bonds on the first of day of the year even if you bought one in December of the previous year.

I purposely overpaid my estimated quarterly federal income taxes in 2021 with the intention of taking advantage of this option. It worked; last year when the I-Bond rate was 9.62% the Treasury sent me 12 paper bonds in the mail! They sent a mix of bonds ranging from as low as $50 to as high as $1,000.

I overpaid my estimated income taxes again last year in order to purchase another $5,000 in paper I-bonds this year. Where else can you get a 6.89% return on your investment today! I’m waiting for one more tax form; it looks like I’ll be doing it again.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Which Way is Up – A Retiree’s Conundrum
• Is the Stock Market Keeping You Up at Night?
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Tags: Catch-Up Contributions, I Bonds, Secure Act 2.0, TSP, TSP RMDs
Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 10th February 2023 by Dennis Damp

Forward this to others that may find this information helpful.
They can sign-up to receive my free Retirement Planning Newsletter.

According to Janet Yellen’s memorandum to congress the U.S. Treasury will be unable to fully invest the portion of the Civil Service Retirement and Disability Fund (CSRDF) not immediately required to pay beneficiaries beginning January 19, 1923. The Postal Service Retiree Health Benefits Fund (PSRHBF) investments will be suspended as well until the debt ceiling is raised.

The Treasury announced temporary G Fund limitations until Congress raises the debt limit. According to the Thrift Savings Plan (TSP), “As of January 23, 2023, the U.S. Treasury was unable to fully invest the Government Securities Investment (G) Fund due to the statutory ceiling on the federal debt.”

The Treasury Department describes the debt limit as the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments.

The debt limit does not authorize new spending commitments. It simply allows the government to finance existing obligations that government made in the past. If a compromise isn’t reached, a government shutdown could occur.

G-Fund Impact

The TSP stated on their website that G Fund investors remain fully protected and guaranteed by the federal government. This statutory guarantee has effectively protected G Fund investors many times over the past 30 years. G Fund account balances will continue to accrue earnings and will be updated each business day, and loans and withdrawals will be unaffected.

Preservation of capital is the G Fund’s investment objective along with generating returns above those of short-term U.S. Treasury securities. Currently, short term 8-week Treasuries are yielding around 4.65% and the G-Fund yielded .34% in January. As the Federal Reserve continues to raise rates, our G-Fund rates will follow suit. If the current .34% rate is maintained through this year it would result in a yield of over 4%.

Updates

National Debt Crisis

The IRS collected $4.1 trillion in 2021 and refunded $1.37 trillion for a net collection of $2.973 trillion dollars after refunds. The federal government spent $6.82 trillion dollars in 2021 by borrowed 56.5 cents of every dollar it spent! The federal reserve simply made a book entry for this deficit spending and then purchased that amount of our Treasury bonds to fund the government and flood the country with cash; driving inflation through the roof.

Their excessive spending hasn’t Improved since I wrote “Unreasonable Expectations – The Debt Crisis”  January 2021 when the COVID crisis was the excuse for the shortfall.

The Treasury can use special measures to avoid a US payments default. They have until June of this year before we would default on our debt. Our representatives have time to put their heads together, compromise, and come up with realistic ways to cut spending and fund the government. Hopefully, common sense will prevail for the good of the country.

TSP Installment Payments Update

A number of our newsletter subscribers didn’t receive their scheduled installment payments in January as we mentioned in our last newsletter. The TSP posted this clarification on their website last week.

“The TSP has a programming issue that is preventing some participants from setting up installment payments in the amount they desire. We are in the process of addressing this issue. In the meantime, a temporary work-around is for you to request partial withdrawals instead of installment payments until we fix the programming issue. Note: The minimum amount for a partial withdrawal is $1,000, and you must wait at least 30 days between requests.”

I-Bond Interest and Taxes

Madeline asked when she should expect to receive a 1099-INT statement from the Treasury for the I-Bonds she purchased last year. A 1099 is only sent out after you redeem your savings bonds at treasurydirect.gov or sent bonds to them for redemption. If you cashed your paper savings bonds at a local bank, that bank should provide you with your 1099.

You can elect to pay annually if desired. The advantages of savings bonds are that you don’t pay state tax on the interest earned and your interest income is tax deferred until you cash them in.

Savings Bond 1099 Guidance

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Which Way is Up – A Retiree’s Conundrum
• Is the Stock Market Keeping You Up at Night?
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Tags: Debt Ceiling, Debt Crisis, Government Spending, TSP Investments
Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION

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Posted on Friday, 3rd February 2023 by Dennis Damp

Forward this to others that may find this information helpful.
They can sign-up to receive my free Retirement Planning Newsletter.

It’s the beginning of a new year! A good time for those planning their retirement to assess where they are financially, and take the necessary steps to secure their future. Federal employees received a significant pay increase this year, 4.1% across the board with a .5% locality adjustment. The 2023 pay charts are available for your review.

Thrift Savings Plan Considerations

Contributions

The Thrift Savings Plan (TSP) elective deferred contribution limit increased to $22,500 for FERS employees with an additional $7,500 catch-up contribution for those age 50 and over. If you aren’t currently contributing up to these limits, consider increasing your TSP contributions this year by at least one or two percent of your pay. Even with inflation continuing to soar, now is the time to invest prudently for your future. Your take home pay will still increase year to year with this modest contribution increase.

Your contributions are tax deferred until you withdraw them in retirement and these contributions will reduce your annual income tax while still working.

TSP 1099-R Update

Bill Morell, received his TSP 1099-R last week in the mail. I’m still waiting for mine to arrive. If you don’t receive your 1099-R Form in the mail by mid-February, they advise calling the TSP to request a replacement. Apparently, the new TSP service provider only has records for participants from 16 May 2022 through 31 December 2022 for the 2022 tax year.

According to their website,  your 1099-R Form should be available in your “Secure Mailbox” by end of February. To get to your secure mailbox click on the circled bell in the upper right corner of the website. I am finding the new TSP site rather difficult to navigate. For example, they should have a direct link to tax records!

TSP Withdrawal Issues

Mark, a newsletter subscriber, sent me a message outlining the problems he is having with scheduled withdrawals. Some participants did not receive their January monthly withdrawals. The TSP informed Mark there was a system wide glitch and for him to call back February first. I was unable to contact TSP to obtain more information about the problem.

Social Security Tax Limit and Medicare Premiums

Higher earners will pay Social Security taxes in 2023 on earnings up to $160,200, an increase from last year’s maximum amount of $147,000.

Medicare premiums for Part B actually decreased slightly this year after a 14.5% increase the year before!

BLUE Book (Benefit Summary Booklet)

Request an updated retirement benefits booklet through https://www.servicesonline.opm.gov. All retirees receive a comprehensive multi page booklet titled, “Your Federal Retirement Benefits” from OPM when they retire. My booklet is 28 pages long. Request your updated copy by selecting the Document Section, the last item listed on the Dashboard’s main menu and click on “Request Booklet.”

If you haven’t signed up for OPM’s Online Services, follow the sign on guidance in my article titled, “OPM Services Online Access Changes.” Their website’s document section also provides quick access to your 1099-R forms, and a downloadable annual and monthly annuity statements.

Many annuitants order a copy each year with their updated benefits information and place the booklet in their retirement or estate planning file. If you lost your original copy, request a copy of the original booklet you received when you first retired to compare it to the most current version.

This booklet is a wealth of information and includes personal statistics including your CSA number, monthly benefit, survivor benefits, life insurance elections, contributions and tax information, how to contact OPM, COLA adjustments, other information and how to update your address.

If you haven’t signed up for OPM Serivces Online, request a copy from OPM by calling 1-888-767-6738. However, several newsletter subscribers reported that an automated reply answers stating, “We are receiving extremely high call volume, please call back later.” I tried calling several times throughout the day for several days and received this message every time.

You can email them at retire@opm.gov or send a written request to the U.S. Office of Personnel Management, 1900 E Street, NW, Washington, DC 20415-1000. I sent OPM an email last month to confirm it was still usable, they replied back a week later stating, “You may direct your questions to this email. Please be sure to include your CSA number, name and details of how we can help you.” OPM advises, “the internet is not a secure environment for transmitting personal information via email.”

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Which Way is Up – A Retiree’s Conundrum
• Is the Stock Market Keeping You Up at Night?
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

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Posted on Friday, 20th January 2023 by Dennis Damp

Federal annuitants typically receive their updated Annuity Statement, with the COLA increase added, early January. OPM’s 1099 R Tax Forms aren’t available until the end of January by regular mail while my Social Security’s SSA 1099 from was received January 10^th!

Download Your Forms Now

Registered users of OPM’s Retirement Services Website can download their Annual Annuity Statement and 1099R form now. I downloaded mine this week.

OPM sends out updated annuity statements anytime there is a change that affects our annuity. Next month we will receive another paper statement showing FEHB healthcare and FEDVIP premium changes. The February statement is already posted and available for download on their retirement services website.

New statements are sent out throughout the year whenever there are changes to checking/savings allotments, income tax withholding, and long-term care insurance, etc.

The annual statement provides annuity and benefit information for you and your family. It includes the annuitant’s Claim number, the amount withheld for each item deducted from your annuity payment, and your gross and net payment. It specifies the monthly survivor annuity currently payable in the event of the annuitant’s death and includes an annual Notice of Survivor Annuity Election Rights. You will also find OPM contact information.

If you misplace your annual statement, download a copy from the website along with the instructions. They outline how to make benefit elections such as applying for a survivor election for a spouse you marry after retirement, survivor annuity elections for a former spouse, OPM contacts, and other information.

Retain Copies for Your Records

I keep the most current Notice of Annuity Adjustment in my retirement folder and include a copy in our estate binder along with OPM’s annuity and FEGLI insurance verification forms that OPM sends out upon request. You can also download them from OPM’s Services Online site. This is an important document and should be readily available if you or your survivor need to contact OPM or require benefit clarifications.

OPM’s Online Services

You must be registered to use OPM’s Retirement Services Website. If you aren’t registered review the latest changes to signing up for this service, they added an extra layer of security. It doesn’t take long; however, you may have to wait for your password to be sent via regular US mail and that can take several weeks.

Other Tax Forms

Many banks and brokerage house’s 1099 reports are also available online for download early. Treasury Direct doesn’t send copies. You must download your Treasury’s OID and 1099 INT statements from your online account. They are typically available mid-January. If you have complex investments, your brokerage 1099 statements could be delayed until mid-March or later.

Tax Preparation Software

I’ve used TurboTax software for decades. It’s intuitive and walks you through the entire process, double checks your work, and they allow you to file online. This software can also download and integrate your brokerage accounts into your tax return, saving considerable data entry time.

There are a number of free online filing services available through the IRS and several of the tax preparation services. The IRS allows you to file online at no cost if your annual income is less than $72,000. You will have to file your State taxes separately.

Take advantage of OPM’s Online Services to download your 1099R to file your taxes early, need to replace a lost 1099R, or to obtain other important retirement forms and reports.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Which Way is Up – A Retiree’s Conundrum
• Is the Stock Market Keeping You Up at Night?
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Tags: 1099 R Forms, Annuity Statements, OID Forms
Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

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Posted on Saturday, 14th January 2023 by Dennis Damp

The December 2022 Consumer Price Index (CPI) dropped .1%, the first drop in the CPI since December of 2020. A sign that inflation may be improving slightly. However, year over year inflation was 6.5%, still high by any standard. Wages, consumer goods, food, and housing remain high.

The Federal Reserve is expected to continue increasing rates this year in an attempt to achieve their 2 percent target core inflation rate. Many feel this target is unrealistic and it may end up much higher. There is still considerable uncertainty in the markets today.

Rates Are Rising

Finally, CD rates are rising enough to compete with Treasury Bills, they aren’t quite high enough to beat I-Bonds yet. Treasury Bills continue to offer a safe haven for our cash with decent yields. There are still challenging times ahead for investors with the country bordering on a recession and market volatility continues to be disconcerting for most.

There are other ways to economize and save for those planning their retirement and retirees alike.

CDs Are Catching Up

Locally, many credit unions and regional banks are offering between 4 to 5 percent for 9 month to 2 year CDs enticing account holders back to the fold. Not bad, considering only a short time ago they were offering less than 1%!  I’m staying with 8-week T- Bill ladders for now; they are yielding 4.523% presently. You can have the Treasury reinvest them for you for up to two years. I believe the Federal Reserve will continue to raise rates to tamp down inflation for some time yet.

When rates start to level off, it may be the time to move to longer term CDs or consider investing in 26 or 52-week T-Bills, or Treasury Notes that are issued in 2,3,5,7 and 10-year durations to lock in attractive yields.

I-Savings Bond Rates 

Now is the time to pick up more I-Bonds, you can purchase $10,000 in I-Bonds through Treasury Direct each year. If married, both can purchase up to that limit. Plus, you can buy up to $5,000 in paper I-Bonds with your tax return. I intentionally overpaid my quarterly estimated federal taxes the year before and was able to buy paper I-Bonds with my return. I’m not sure yet if I overpaid enough this year to purchase more.

The current I-Bond composite rate is 6.89%, still well above what you can get elsewhere. This new rate runs through April 30, 2023. As I mentioned in an earlier article on this subject, you can’t cash them in for one year. Plus, if cashed in within the first five years you will lose 3 months interest.

My I-bonds issued in 1999 have a 3% fixed rate, these are earning 9.4% now! They earned over 13% from May 1 to October 31 of last year! Can’t beat that.

If you purchased an I-Bond by no later than April 30^th of this year, you’ll receive the 6.48% for six months from the date of purchase, the rate will change after that to the new rate announced this coming May for the next six-month period.

Treasury Bill Rates Continue to Rise

My article titled “Ditch your Bank’s Low Savings Rates” describes the advantages of Treasury bills compared to bank and credit union rates. I wrote the first article on this subject last March when my bank’s savings rate was .04%; it is currently 1%, still well worth moving the majority of my savings to T-Bills.

Today you can earn around 5% on a 52-week T-Bill, the shorter-term 8-week Bills, as noted in the following chart, are earning 4.523%!

If you purchased $50,000 in the 26-week T-Bill issued on 1/5/2023 that’s earning 4.892%, the Treasury withdrew $48,7777 from your account. On the maturity date of 7/6/2023 they will deposit $50,000 back into your account for a $1,223 gain.

Had you had this amount deposited in a bank money market account paying 1%, like mine, you would have earned only $250!

Summary

With the new year beginning, it’s an ideal time to pick up more I-Bonds if you have the cash to do so. They grow tax deferred over time and I’ve held I-Bonds since they initially offered them in 1998.

Now that CD rates are improving, and if you can lock up your discretionary savings for 9 months to 2 years or longer, they are an option to consider. You can cash CDs in before maturity, however the penalties can be significant. I’m waiting until rates level off and maintaining my 8-week T-Bill ladders until that time.

The U.S Treasury updated their website and it is now more reliable. However, contacting them by phone is tedious with very long wait times. Plus, they aren’t accepting email questions now either unless you have an open ticket with them.

Print out your T-Bill transactions and retain a hard copy for your records. I print the screen for each new purchase and reinvestment.

Helpful Retirement Planning Tools

• Retirement Planning for Federal Employees & Annuitants
• The Ultimate Retirement Planning Guide – Start Now
• Which Way is Up – A Retiree’s Conundrum
• Is the Stock Market Keeping You Up at Night?
• TSP Guide
• TSP Considerations
• Budget Work Sheet
• Social Security Guide

Disclaimer: The information provided may not cover all aspect of unique or special circumstances, federal regulations, medical procedures, and benefit information are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change. The advice and strategies contained herein may not be suitable for your situation and this service is not affiliated with OPM or any federal entity. You should consult with a financial, medical or human resource professional where appropriate. Neither the publisher or author shall be liable for any loss or any other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Posted in BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SOCIAL SECURITY / MEDICARE, SURVIVOR INFORMATION

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