Civil Service Retirement System

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Taxation of investment earnings can significantly reduce your retirement nest egg.  If you are a federal employee who falls under the Civil Service Retirement System (“CSRS”), you have a unique way to potentially reduce taxation.

STEP ONE: Contribute up to 10% of your lifetime earnings from your federal job to a Voluntary Contributions Account.  For example, if you’ve made $1,000,000 over all your years with the federal government, you can contribute up to $100,000.

STEP TWO: Once the money has been contributed to the Voluntary Contributions Account, transfer it into an Individual Retirement Account (“IRA”). 

STEP THREE: Convert your IRA to a ROTH IRA.[1]  Because your contributions were made with after-tax dollars, your contribution transfers without any additional taxes due; however, any earnings in the account would be subject to ordinary income tax upon conversion.  Growth inside a ROTH IRA is not subject to taxation. It’s also not subject to required minimum distributions like your TSP or traditional IRAs.[2]

STEP FOUR: Call the CERTIFIED FINANCIAL PLANNER™ practitioners at CovingtonAlsina for more information, or to schedule a complimentary consultation to see if this strategy fits into your overall financial objectives.