The Foreign Service Journal, November 2016

Views and opinions expressed in this column are solely those of the AFSA Retiree VP. Contact: boyatt@afsa.org | (202) 338-4045 RETIREE VP VOICE | BY TOM BOYATT AFSA NEWS TSPs, RMDs, QCDs and AFSA: Go for the QuadrupleWin! “It is better to give than receive.” Most would agree with this biblical maxim—at least in theory. With a slight modification I believe I can gain universal agreement: “It is better to give than be taxed.” I will explain my maxim by exploring the medley of acronyms in the title. TSP— The Thrift Savings Plan is the federal govern- ment’s successful version of the private sector 401K. The mutual funds available under the TSP are good performers, the transaction costs are kept at a mini- mum, the assets grow tax free, authorized contribu- tions are tax deductible and the federal contributions are generous. More than a few col- leagues have become mil- lionaires and many more will achieve this status in years to come. What’s not to like? The RMD is what is not to like. RMD— The government wants to make sure that (except for Roth IRAs) tax favored retirement vehicles (e.g. 401Ks, regular Indi- vidual Retirement Accounts and TSPs) are actually spent and taxed in retirement. Hence, the law requires that starting at age 70 years and six months a portion of the tax favored assets must be distributed and taxed every year. The portion is based on the owner’s life THE FOREIGN SERVICE JOURNAL | NOVEMBER 2016 53 expectancy and a bureau- cratic formula. This is called the “Required Minimum Distribution.” I really resent (“hate” may not be too strong a word) the RMD, which complicates my efforts to provide for my younger wife and our disabled daughter. I do not know anyone who likes the RMD. My angst, however, is assuaged by the QCD. QCD— Last year a law was passed making perma- nent a feature that had been part of the annual process for several years. Qualified Charitable Distributions up to $100,000 can now be made annually from some retire- ment vehicles (IRAs–though not directly from the TSP) and they are not counted as income but are counted as part of the RMD. My rule of thumb is simple. Take whatever is needed for current expenses from the retirement vehicle. If it is more than or equal to the RMD, fine. If it is less, then you have a choice. You can meet the RMD by taking cash out and paying taxes thereon; or you can give the same amount as a QCD to one or more of your favorite charities and pay no tax on that amount of income. To make the RMD into the QCD the money must be in an IRA and not the TSP. Because the TSP has a rule that requires only one partial distribution, it is sug- gested that the TSP money be moved into an IRA before the year you turn 70 and six months. AFSA recommends that you consult with a financial planner before taking any firm steps with your money. It has been a long time since I reached RMD age. For several years I have contributed to my favorite educational and Foreign Service 501(c)(3)s by giving them appreciated stocks (even more leverage) from my IRA that I don’t need to convert to income for current expenses. It is very satisfying. Where, then, does my final acronym, AFSA , fit into this discussion? As AFSA President Bar- bara Stephenson explains in her column, AFSA is develop- ing an ambitious outreach plan to tell the proud story of the Foreign Service to the American public. Building on a series of strategic partner- ships, AFSA aims to build a domestic constituency for As soon as the year turns, I will be calling my broker to execute the quadruple win. I hope you will do the same. the Foreign Service by win- ning over supporters in all 50 states who are prepared to stand up for the Foreign Service and defend the importance of our mission. That outreach effort will be supported by the Fund for American Diplomacy, one of AFSA’s 501(c)(3) arms. This initiative is worthy of full support by all For- eign Service personnel on the merits. For us retired persons, the initiative offers a chance to participate in a quadruple winner. A gift to the Fund for American Diplomacy from an IRA or TSP is a win for the FAD. It is a win for the Foreign Service because the FAD works to strengthen the links between the Service and the American public. It is a win for the United States because our diplomacy gathers public support and is strengthened thereby. And it is a win for the indi- vidual donor, whose taxes are reduced and self-esteem is increased by contributing to our profession. As soon as the year turns, I will be calling my broker to execute the quadruple win. I hope you will do the same. Diplomacy matters. n