CSRS & VCP Option

What is CSRS ?

* The Civil Service Retirement System was implemented on August 01, 1920.

* CSRS is a defined benefit contributory retirement system

* Employees and agencies share in the expense of the annuities to which employees become entitled.

CSRS Offset

* Civil Service Retirement System with Social Security Offset.

* Created in 1987 and applies to employees who had a break in Federal service after 1983, and lasted more than 1 year and had at least 5 years of civilian service as of January 1st , 1987.

* Offset Employees earn credit under both CSRS and Social Security.

* CSRS Offset Employees pay the same for retirement as CSRS employees but you pay Social Security tax at 6.2% of your pay.

Agencies contribute a set amount(usually 7% for most employees) to CSRS Offset

* Retirement benefits are computed the same as CSRS however when you become eligible for Social Security benefits(usually at age 62)

your CSRS retirement benefit is reduced (offset) by the value of the Social Security benefit you earned while working for the Government.

CSRS Basic Pension Eligibility Requirements

Age Years of creditable service

55 30

60 20

62 5

special provision ATC/FF/LEO (age 50) 20 years of service

Any age 25 years of service

Mandatory age 57

CSRS Early Out

Age Years of Credible Service Special Requirement

any age 25 Major Reorganization , Reduction in force , Transfer of function

50 20 (special requirement same as above)

Any age 25 Discontinued Service

50 20 Must be involuntary not for misconduct or Delinquency

CSRS Basic Pension Pension Factor

Reductions in annuity

your annuity will be reduced if:

* you retire before age 55: your annual annuity will be reduced by one-sixth of 1 percent for each full month under age 55

* you didn't make a deposit for service performed prior to October 1, 1982 during which no deductions were taken from your pay (non-deduction service after that date is not used in the computation of benefits if the deposit is not paid) your annual annuity will be reduced by 10% of the deposit due including interest.

* You didn't make a redeposit of a refund for a period of service prior to March 1, 1991 , your monthly annuity will be actuarial reduced based on the amount of redeposit due including interest divided by a factor for your age at retirement.

you provide for a survivor annuity:

* Full survivor benefit for current of former spouse annual annuity will be reduced by 2.5% of the first $3,600 plus 10 percent of the annuity over $3,600.

* Survivor annuity for a person who has an "insurable interest" in you, your annual annuity would be reduced from 10-40 percent depending on the difference in your age and the age of the person named.

Survivors Benefit At Retirement

CSRS Options at Retirement

55% of retiree annuity

Less than 55% of retiree annuity

No survivor benefit (ANYTHING LESS THAN 55% OF RETIREE ANNUTIY WILL REQUIRE A SPOUSAL CONSENT)

Survivor Annuity

55% of annuity computed as if you had retired on a disability retirement or the higher of:

* An annuity based on your high-three & length of service including credit for unused sick leave

* A guaranteed minimum which is the lesser of 40% of your high three.

* A regular annuity increased by your length of service in the period of time between your death and your 60th birthday.

CSRS Survivor Benefits While Employed

* No lump sum death benefit is payable immediately to survivors.

* Surviving spouse employee must have completed 18 months of creditable civilian service and covered under CSRS.

* Married at least 9 months (except in cases of accidental death) or a child was born of the marriage

* Employees's death

* Former spouses

* If a qualifying court order is on file with OPM

* Child Survivor Benefits

Survivor Benefits For Children

* A child must be unmarried be under 18 and have been dependent of the deceased retiree.

* A child is dependent if he or she is born within wedlock adopted, a stepchild or recognized child born out of wedlock whom the retiree supported either based on court order or with voluntary contributions.

* unmarried children 18 or over who can't support themselves because of a disability that began before age 18

* unmarried children age 18 to 22 who are full time students also are eligible

* child rate when there is a surviving parent is $512 per child.

* No surviving parent $615

Insurable Interest Annuity Reduction

* older same age, or less than 5 years younger reduction is 10%

* 5 but less than 10 years younger 15%

10 but less than 15 years younger 20%

15 but less than 20 years younger 25%

20 but less than 25 years younger 30%

25 but less than 30 years younger 35%

30 or more years younger

WINDFALL ELIMINATION PROVISION

* Applies to those who receive a federal pension and are also eligible for social security benefits.

* Affects workers who reach age 62 or become disabled after 1985 and are first eligible after 1985 for a federal pension.

*If applicable a different formula is used to compute your social security benefit and will result in a lower benefit.

CSRS VCP to Roth IRA

CSRS Voluntary Contributions Transfer to a Roth IRA

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.

Using the CSRS VCP to Max-Fund a Roth IRA

The CSRS Voluntary Contributions program is a great way to max fund a Roth IRA, and we’ve helped many of our clients do this.

Most folks would never even think to use the VCP this way. (but then again, most folks haven’t even heard of the CSRS Voluntary Contributions program at all!) But really what we’re doing is no secret - it's just using the tax laws to our clients advantage.

.Enter the CSRS VCP

The CSRS VCP is also a ‘qualified’ account, like a Traditional IRA or your TSP. But it’s got some key differences: taxes and limits.

First, taxes. The money you put in the CSRS VCP is after-tax money. However, your contributions to the CSRS VCP do earn a small interest rate that is tax-deferred. So there will be a mix of after-tax and tax-deferred money in your account. This can be tricky, so we cover this in detail in the book.

Second, limits. While you are limited in how much you can put into the CSRS VCP - it’s a much higher limit than how much you can put into other qualified accounts. For example, you may be limited to $6,500 a year for a Roth IRA, or $22,500 a year for your TSP. Your VCP limit is not by year, but rather set at 10% of your CSRS basic pay over your entire career. For many CSRS, their VCP limit is well over $100,000.

Do You Make “Too Much Money” for a Roth IRA?

In the CSRS retirement classes I teach, lots of people are familiar with Roth IRAs. But many thought they made ‘too much money’ to have a Roth - so they stopped looking any further into Roth IRAs.

Let’s look at an example where you make ‘too much money’ to qualify for a Roth IRA. Say you’re married, and between the two of you, you make $200,000 a year. You would not be eligible to contribute directly to a Roth IRA.

However, if you qualify for the CSRS VCP - you have another option. Let’s say you have $40,000 that you’d like to put in a Roth IRA if you could - but since your income is too high, you’re not even allowed to put in the regular $5,500 or $6,500 a year.

You could open a CSRS VCP account. Fund it with the $40,000. Open a Roth (but don’t fund it yet). File the paperwork to withdraw your VCP and transfer the contributions to your Roth IRA. While this is not the most common way to fund a Roth - we’re still playing by all of the rules.

While that’s the basic idea - it’s really important to get all of the details right. It’s not a complicated process, but if you get it wrong it could big tax trouble.

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