Micah Shilanski 00:05
It is not only important to know how your benefits work, but your spouse needs to understand how those benefits work, God forbid, but when you pass away for information like that, stay tuned for this FERS Federal Fact Check. Hi, I am Micah Shilanski with Plan Your Federal Retirement. Today, we have a question that comes in from Mark about his wife that passed away, and Mark again, before I get to my condolences on your wife passing something that’s really challenging to deal with, and then on top of that, you have to deal with some complications with the federal benefits, understanding how the process works. Let’s go ahead and take a peek at Mark’s question. I need help with my federal employee survivor benefits. I’m looking for help with my wife’s survivor FERS death benefits. She worked as a federal employee and was working when she passed after a death, I met with the employer to fill out the paperwork gain access to the TSP and FERS account to make decisions regarding her death benefit that would be paid out. I don’t understand the tax rules of FERS and the death benefit funds. So I’m looking for some guidance. My wife passed away in February, and after nine months, I was finally given access to her TSP account. Her FERS death benefits are still being processed by OPM. Mark, again, my condolences on the passing of your wife and then having to deal with this complex system and the delays that it takes you ask some really good questions right here, especially, I won’t get into too much on how the benefits work, I’m going to talk about your question on the tax side of it, and we have a lot of videos out there on our website that talk about taxes and the tax buckets, that’s another great one for probably you to reference. The TSP, but again, I’m not looking at her TSP, so I speak generically, more than likely was invested in a pre tax account. There’s two things you can invest in TSP you can invest in, pre-tax, or in the Roth. The Roth, when we put money into a Roth TSP or Roth IRA account, we put in money after taxes. What does that mean? That means we have no tax deduction for the contribution, but anything that money grows to is 100% tax free, so it’s kind of a nice benefit. Now the opposite side is going to be the pre tax money. That’s where we put money into our TSP pre-tax, that means we got a tax deduction today, but anything that money grows to in the future is 100% taxable, more than likely, that’s where some, if not all, of the money that she was contributing went into her TSP account. So if the money is pre-tax, that means when you pull it out, you have to pay taxes on that money. Mark, please be really careful in how you do this, there’s ways you can transfer the money from a TSP to an inherited IRA account, which will result in no taxes, you cannot do a rollover be really careful, I’m not gonna spend a lot of time on this video talking about it, there’s no such thing as a spousal rollover, and it really can create some tax issues for you, so transfer is the word that you want to use when you’re looking at potentially moving money from the TSP. As you as a spouse are inheriting that money, now we’re under Secure Act 2.0 under Secure Act 2.0 is you and the spouse is inheriting that money. Be careful on how those RMDs Required Minimum Distribution work. You don’t have those until you or your spouse, potentially, on how the account is set up, would have been RMD age, which is 73 years young to 75 depending on when you and her were born, so some things to think about with that. Now, another thing you talk about the FERS benefits, when the FERS benefits get paid, presumably you were left as her beneficiary. The way that it works is that if she had enough years of federal service, you will be paid out a full survivor benefit, which is 50% is the full Survivor Benefit, again, the way that this contribution works, now, I don’t know if she’s under FERS, FERS RAE, FERS FRAE, but basically she put in a little bit of money post task. Most of the money it was put into her FERS pension is from the employer which you were never paid taxes on, so it’s going to be a combination. Some of that money is going to come out tax free, some of that money is going to come out taxable, the vast majority is going to come out taxable to you. Good news Mark, you don’t have to calculate that OPM will calculate that for you on your 1099-R which is a retirement statement you’re going to get from OPM every year, and it’s going to say the gross amount, also going to have the taxable amount on there as well, so you’re going to have that information. So really important to understand, especially before you start moving money, taking money out of the TSP or IRA accounts, etc, understand the tax consequences, so Mark, I’m really glad that you’re reaching out and asking this question. It’s kind of a bit of a generic answer because I don’t know, really all the details, that’s going on, make sure you understand that. If you have more questions like this to make sure you jump on our website, and you can be featured in our next FERS Federal Fact Check, till then Happy Planning!