The Foreign Service Journal, July-August 2013

THE FOREIGN SERVICE JOURNAL | JULY-AUGUST 2013 19 If any forms need updating, Depart- ment of State employees should submit new designation forms to the Bureau of Human Resources Service Center at HRSC@state.gov. New TSP-3 forms should be sent to TSP, as explained on the form. Have Not Obtained Prior Service Credit: Twenty-seven percent of respondents who had federal civil- ian or military service prior to joining the Department of State had not taken action to increase their Foreign Service retirement annuity by obtaining credit for that service. In most cases, doing so requires making a deposit to cover the employee retirement contributions (plus interest) that were not made originally. Employ- ees should resolve their prior service issues long before they retire. Delaying increases the interest charges that the employee must pay. To apply, Depart- ment of State employees should go to the Employee Benefits Information System on HR Online and use the “HR Link” module. Do Not Have Estate Planning Docu- ments: Thirty-nine percent of respon- dents did not have an up-to-date will and/or trust and other estate planning documents, such as a power of attorney. While all states and the District of Columbia have laws directing the divi- sion of assets of people who die without wills, those laws can vary widely. Unless you know the default inheritance laws of your state of residence and are sure they match the division of assets you would want, it is a good idea to execute a will or trust and other estate planning documents. Eight Gaps in Pre- Retirement Knowledge Unclear about Impact of Divorce on Retirement Benefits: Nearly half—47 percent—of married respondents had little or no understanding of how their pension and other benefits could be affected by divorce, either before or after retirement. Federal law has provisions govern- ing the division of Foreign Service retirement annuities between former spouses. Divorce decrees and property settlement agreements can also affect the division of retirement benefits. Employees who want an analysis of their specific situation may send a copy of any divorce decree and property settlement to the Department of State’s Office of Retirement. Either scan and e-mail the documents to HRSC@state. gov, or e-mail that address asking for mailing instructions. HR/RET will pro- vide employees with a divorce determi- nation letter. Unclear about How Retirement Benefits Are Taxed: Similarly, 46 percent The Thrift Savings Plan is one of three pillars—along with Social Security and a federal annuity—of the retirement financial security of employees hired after 1983. of survey respondents had little or no understanding of how retirement ben- efits are taxed and what strategies could reduce or defer those tax consequences. The federal government taxes retire- ment income from pensions (excluding a portion representing your contribu- tions), Social Security (if the recipient’s income from other sources exceeds a base amount) and TSP withdraw- als (excluding those from Roth TSP accounts). The only way to reduce the tax bite on pension and Social Security income is to reduce income from other sources in order to drop to a lower tax bracket. Taxes on TSP withdrawals depend on the amount and timing of withdrawals and can be reduced or entirely deferred until age 70½ by limiting or delaying withdrawals. Roth TSP withdrawals are not subject to taxation as long as vesting requirements are met. State and local taxation of retirement benefits varies, with some jurisdictions excluding them from taxation. Consult your taxing authority or AFSA’s annual tax guide for details. Unclear about Pros and Cons of Roth TSP: Thirty-seven percent of respon- dents had little or no understanding of the advantages and disadvantages of contributing to a Roth TSP versus the regular TSP. The Roth TSP combines many of the benefits of TSP retirement savings with the after-tax benefits of a Roth savings plan. The difference between the Roth TSP and traditional TSP is in its tax treatment. You will not get the benefits of tax-deferred savings (an upfront tax deduction) on Roth contributions as you do with your traditional TSP contri- butions; however, your Roth savings will grow tax-free. Later, when you withdraw your Roth contributions and associated