Civil Service Retirement System Voluntary Contribution Plan

Submitted by Julie Brangenberg on Wed, 2015-11-25 16:43

Hello.
I have a client who has been working for the US Gov’t (Civil Service) for 35+ years. He plans to retire in 6 mos-
1 yr. He was just made aware of a program, called the Voluntary Contribution Plan, where he can contribute after-tax dollars up to 10% of his lifetime earnings. He could have been depositing money during his working career or as a lump sum. He recently utilized the lump sum option, and put $150,000 of his personal savings into the Plan. His options for the plan are: annuitize, lump sum, Roth IRA, Trad IRA. He wants to roll the after-tax portion into a Roth IRA. There won’t be much to roll into a Trad. IRA (earnings), because he just put the money in, but will grow at 2%/year). He has a Roth IRA with us already.

A couple of questions:
1) Have you heard of this plan/option?

2) Do you believe he is eligible to roll the after-tax money to a Roth without any tax consequences?

3) Can he roll it to his existing Roth IRA that’s already funded with conversion money from late 1990’s?

4) Do you believe he can roll the after-tax monies over now, while still employed, or does he have to wait until separation for service?



Submitted by Alan - IRA critic on Wed, 2015-11-25 17:29

  • Yes, this is a great deal for CSRS employees who have saved enough to make a large after tax voluntary contribution to the plan. This option gained notoriety starting in 2009 when direct rollovers to a Roth IRA were introduced and in 2010 when the income limit for Roth rollovers was eliminated.
  • Client can roll the contribution tax free to a Roth IRA and any earnings to a TIRA (or perhaps the TSP) tax free so what this does is changes taxable account savings into Roth assets that do not have RMDs and are totally tax free once qualified (5 years and 59.5). Does not matter in most cases whether the rollover goes to a new or existing Roth IRA. Note that since the Roth rollover will be non taxable, the 5 year holding period to avoid a penalty prior to 59.5 does not apply to this balance.
  • Employee can roll the contribution out anytime before retiring, but at separation must be careful not to let the default annuity purchase take effect which would eliminate the rollover option after retirement. It is preferable to contribute and the rollout quickly thereafter so that the earnings will occur in the Roth rather than a pre tax account.

Submitted by Julie Brangenberg on Wed, 2015-11-25 20:08

Thanks for your expertise!  I appreciate it very much!

Submitted by Rick Ryan on Mon, 2015-12-14 14:21

A FedSmith.com article dated February 16, 2015 (http://www.fedsmith.com/2015/02/16/turn-your-taxable-portfolio-into-a-tax-free-retirement-account/) a friend sent me last night tated “Under President Obama’s proposed budget, aftertax rollovers to Roth IRAs will end next year. Throughout 2015, Civil Service Retirement System (CSRS) and CSRS Offset employees can still lock in the benefits.”.  Can you confirm that the Roth rollover option has not been eliminated after the end of 2015?  Thanks.

Submitted by Alan - IRA critic on Mon, 2015-12-14 16:35

It’s still good. A whole raft of administration proposals similar to this have never even been considered in Congressional bills. And even if it was, it is very unlikely to apply to any rollovers that have already been processed. If the proposal starts to gain any traction, CSRS employees might want to process the contribution/rollover without unnecessary delay.

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