Answering listener questions about Medicare Advantage and retirement. Listen to the Full Episode: Enjoy the show? Use the Links Below to Subscribe:Read More
The CSRS Voluntary Contributions Program (VCP) is a special component of the Civil Service Retirement System.
While the CSRS VCP program was originally designed to allow CSRS to put more money in and buy an additional retirement annuity, the big deal about the CSRS VCP program these days is that you can use it to max-fund a Roth IRA.
This is a fantastic benefit for CSRS, especially CSRS who thought they made ‘too much money’ to have a Roth IRA.
Few people have even heard of the VCP, let alone know how to use it to max-fund a Roth. That’s why I call the CSRS Voluntary Contributions Program the best kept secret in CSRS.
I get so many questions about the CSRS Voluntary Contributions Program that I’ve written a book about it, “The Best Kept Secret in CSRS: How You Can Use the CSRS Voluntary Contributions Program to Put Away Money for Retirement”
In the book, I cover everything you need to know about the VCP and give you step-by-step instructions how to transfer money from the VCP to an IRA.
But first, I want to answer some basic questions about the CSRS Voluntary Contributions Program. If you still want to know more, then we’ll talk more about what’s in the book.
Let’s go over the basics of the VCP…
The CSRS Voluntary Contributions Program (CSRS VCP) is a special benefit only for CSRS and CSRS Offset federal employees. It is not available for FERS. It’s a very unique benefit, and there is no comparable program in the FERS system.
If you meet certain qualifications (and most CSRS do) you can open a VCP account. The money you put in is after-tax (not tax-deferred like your TSP). That money earns a small amount of interest that will be taxed later.
If you are eligible for the VCP, you can put up to 10% of your aggregate base pay into your CSRS Voluntary Contributions account.
This is 10% of your accumulated base pay over your ENTIRE CSRS work history.
And if you’ve been working for the Federal Government for a long time – this could be quite a large amount.
And you can contribute money to your VCP over your career, over several payments, or even with just one big check close to retirement.
For easy numbers, let’s say you made $50,000 of base pay every year for 20 years as a CSRS. Now of course, your base pay will have changed over the course of your career – but we’re using round numbers to highlight the concept.
In our example, you would be able to contribute… (10% of $50,000) = $5,000 … $5,000 x 20 years = $100,000.
And in this case, $100,000 is your maximum contribution limit.
You could contribute any amount up to your limit (as long as it’s in $25 increments). So if you only wanted to put a total of $40,000 in your VCP, that would be your choice.
And with your VCP – you could be putting money into your VCP little by little over your working career – or write one big check right at the end before retirement.
So you can see that even though you are limited in your contributions, the limit is pretty darn high. And the higher your basic pay has been over your career, the higher your limit will be.
In the book, we discuss the contribution limits for the VCP in much more detail. And we also discuss ways to help you figure out your personal contribution limit.
There are two things you can do with your CSRS Voluntary Contributions money:
#1) Buy a VCP Annuity at Retirement
#2) Withdraw/Transfer the Money (this is where we can use the VCP to do some very cool things)
So once you fund your VCP, you can choose the VCP annuity at retirement. Or you can withdraw your money at any time before retirement and transfer it to another account, like a Roth IRA.
But you can’t do both – it’s all or nothing. You either use all of your VCP money to buy the VCP annuity, or you transfer it out to another account.
Let’s look closer at these options…
When you retire, you can choose to buy a VCP annuity. The annuity amount you receive will be based on your account balance at retirement.
When you buy the VCP annuity, you’re trading in the entire CSRS voluntary contributions account balance in order to receive a certain amount each month as long as you’re retired.
We cover the VCP annuity in much more detail in the book, including some important things you need to know. For example, we talk about how theVCP annuity you receive will be partly taxable. Recall that your voluntary contributions were after-tax, but the interest it earned was tax-deferred. Since there was a mix of after-tax and tax-deferred money in your VCP account when you traded it in for the annuity, a portion of each payment you receive in retirement will be taxable.
In the book, we also talk about how the VCP annuity does NOT get increased by COLA. It will be the same amount for as long as you are retired.
And we also cover the important survivor considerations – you need to know that the survivor options on the VCP annuity are very differentfrom your regular CSRS pension survivor choices.
So the VCP annuity is an option – and we do cover it in the book. But by far, the most popular thing to do with a VCP is to withdraw it before retirement or at retirement.
You have the option of withdrawing your CSRS voluntary contributions at any time before retirement.
What’s the catch? Well, there are two really…
Catch #1) If you withdraw your VCP, you must withdraw everything. You can’t take a portion, you have to take it all.
Catch #2) Once you withdraw money from your VCP, you can not open another account again. You only get one shot at the VCP.
Yes, as of 2019, there are still no income limits on *conversions* to Roth IRA accounts. Technically, the income limits on Roth conversions were repealed as of 1/1/2010. As it stands, there is no set date for the income limits to return.
But the tricky thing about tax laws is that they are in effect… until they’re not.
Congress has the ability to bring back those limits whenever they want.
But as of 2019, there are still income limits on *contributions* to Roth IRAs, but there are no income limits on *conversions*.
Before you do anything, make sure you understand all of your CSRS Voluntary Contributions options. Even though you may be most interested in the VCP-Roth transfer, it makes sense to understand how the VCP annuity works. The more you know, the better decision you’ll be able to make.
That’s why we cover the VCP annuity and all of its options in the book, as well as the VCP-Roth transfer.
Changes to the tax laws in 2010 opened up a special opportunity for people who used to make ‘too much money’ to have a Roth IRA.
While there are still income limits on who can *contribute* to a Roth IRA – there are no longer income restrictions on who can *convert* money from another qualified account to a Roth IRA.
Click here to learn more about CSRS Voluntary Contributions & Roth IRAs
The CSRS Voluntary Contributions program is a very unique benefit.
Because it is so unique it can be difficult to find good information on the program. I’ve even had people tell me their HR person told them the VCP didn’t exist.
If you want to use the VCP, you’re going to need to make sure *you* have all the right information to make the best decision for your personal situation.
It can difficult to sift through all of the information out there.
If you’re looking for one place to go to learn about all of your VCP options, you’ll enjoy ‘The Best Kept Secret in CSRS’.
I’m so sure that you’re going to love this book that I’m going to make you a promise:
If you’re not 100% happy with the book within the first 6 months, I want to give you your money back.
I’m listing out reasons here – but if you’re not happy with the book for any reason within the first 6 months after you buy it, I want refund the full amount you paid for the book. And I’m not going to hassle you about it either – just send me an email and I’ll refund the price you paid for the book.
So go ahead, buy the book. I’m confident that you’ll find it to be a very valuable resource. And if you don’t – I’ll refund your money. You have nothing to lose.
This is the most comprehensive book available on the CSRS Voluntary Contributions Program and how to transfer your VCP money to an IRA or Roth IRA.
If you’re thinking about using the VCP, but want to make sure you’re not missing anything – this book is for you.
Lots of CSRS Retirement guides mention the VCP, but none of them go this far in detail about your VCP choices and their consequences.
If you’re looking for a step-by-step guide to help walk you through the process, this is it.
Tammy Flanagan, Senior Benefits Director of the National Institute of Transition Planning, Inc., was kind enough to write the foreword to The Best Kept Secret in CSRS.
Here’s what Tammy had to say…
Foreword: From Tammy Flanagan…
Micah Shilanski is the best person I can think of to write about the voluntary contributions program. Micah has a heart for the federal employee and is truly committed to helping employees prepare for a financially secure future. Micah is an accomplished financial advisor who takes advantage of modern technology in his practice and strives to provide clear information to help his clients take charge of their future. This publication is a further example of how Micah took the time to thoroughly analyze the benefits of the voluntary contributions program for federal employees covered by the Civil Service Retirement System and lay out the details of this program in a way that anyone can understand.
Why write a book that only 10% of the current federal workforce will need? It was a good idea because if you are one of the remaining employees covered by the CSRS, then you need this information. Micah saw a need and he filled it when he put together the first edition of “The Best Kept Secret in CSRS.” Now, Micah has expanded and improved his first edition to share his experience with other federal employees, like you, who have learned of the advantages of participation in this unique investment opportunity.
Although the Office of Personnel Management provides information about this program at www.opm.gov, you will not find information there about using this program as a financial planning tool to help you achieve your retirement goals. Micah will walk you through the mechanics of getting your money into and out of the voluntary contributions program so that you will be able to use these funds in ways that you were not aware were possible.
I met Micah several years ago when I came to Anchorage to present a retirement class to federal employees working in Alaska. I asked Micah to help me explain the transition from COLA to Locality pay which was something new for the employees of Alaska and was a topic that I had very little experience. He was not only willing to help, but he did a fabulous job. Having worked with Micah – and I even had the privilege of meeting his beautiful wife, Kelly and his adorable children – I can highly recommend this publication. If you are covered under the Civil Service Retirement System (or CSRS Offset), this book is worth your time to read so that you will be able to use the voluntary contributions program to supplement your retirement savings.
Senior Benefits Director
National Institute of Transition Planning, Inc.
Author of the weekly Retirement Planning column at www.govexec.com
The Best Kept Secret in CSRS is an eBook; which means as soon as you purchase it, you’ll be able to download it instantly.
Our eBook is in a PDF format, so you’ll be able to read it on virtually any computer. You can also choose to print it out on your own printer if you would like.
The best part about an eBook – there’s no waiting for it to arrive. You can be reading it, and finding answers to your Voluntary Contributions questions within minutes of buying.
Click the link below to purchase for only $7.97…
“I am a 35-year USPS employee and am planning on retiring this year. I am 58. I have heard about the backlog of retirement applications that OPM gets at the
Nealy asks a question that we see every now and then from federal employees: “Should you collect unemployment while you’re waiting on your Federal Employee Retirement System (FERS) pension
https://youtu.be/uFdTV3a4-XA “Hi, I have a question regarding Roth TSP which I have not gotten a clear answer on. I will be 54 this year. I plan on retiring at 62
I am aware that after I put in ten years’ federal civilian creditable service and then retire, my FERS annuity will be reduced monthly by 10% for the surviving spouse
Get the most out of your federal retirement benefits by taking advantage of the FERS resources created by Micah Shilanski, CFP®, and the team of independent financial advisors at Shilanski & Associates, Inc. Join the thousands of federal employees who trust us to guide them in their retirement planning journey because of our unique perspective of how your FERS benefits contribute to your comprehensive financial plan.
7 CLASSIC RETIREMENT MISTAKES Federal Employees Make
7 CLASSIC RETIREMENT MISTAKES Federal Employees Make