Could a single dollar cost you hundreds more in Medicare premiums? In this mailbag episode, we answer some of the most common retirement planning questions from listeners, beginning with how to avoid IRMAA surcharges and why Medicare planning really starts at age 63. You’ll learn how strategies like Roth conversions, bracket-topping, and Qualified Charitable Distributions (QCDs) work.
The conversation also tackles several other listener questions, including when Roth conversions inside the TSP make sense, whether the TSP G Fund is a suitable replacement for bonds, what the repeal of the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) means for former CSRS employees, and how to prepare for large Required Minimum Distributions (RMDs). Listen in to hear not just the rules, but the thinking behind smart retirement planning and why every strategy should be tailored to your individual financial plan.
Listen to the full episode here:
What you will learn:
- How do I avoid IRMAA surcharges? (4:00)
- Can I do a Roth conversion inside of TSP? (21:45)
- Is the TSP G Fund a good substitute for bonds in my portfolio? (26:45)
- I’m a former CSRS employee. How does Social Security work for me, and what should I know about the Windfall Elimination Provision and the Government Pension Offset? (31:40)
- We’re expecting to have 100 to 190,000 in RMDs; how do we plan for the tax hit? (36:50)
Ideas Worth Sharing:
- “There’s no possible way that we can answer the ‘does it make sense?’ question until we’ve gone through our entire prospect new client experience and actually developed a financial plan.” – Mason & Associates
- “You can’t have a financial plan without a tax plan. So if we have a 30-year strategic financial planning vision, that means we have a 30-year strategic tax planning vision as well.” – Mason & Associates
- “Medicare planning really starts at age 63. So if you’re 63, the income in 2026 will impact your 2028 Medicare premiums. So you need to be thinking about Medicare premiums before you’re enrolling in Medicare.” – Mason & Associates
Resources from this episode:
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Read the Transcript Below:
John Mason: Welcome to the Federal Employee Financial Planning Podcast and the Mason YouTube channel. This is Mailbag Episode Number Two with me, John Mason, and my co-host, Tommy Blackburn. Tommy, welcome to the Federal Employee Financial Planning Podcast.
Tommy Blackburn: Hey. Good morning, John. Uh, it’s always good to be together doing these. I’m looking forward to it. You’re actually in the office right now, uh, getting to see some of the renovations coming together. I’m from home, uh, but it’s, it’s awesome to be able to do this from different places. Who knows? Maybe we’ll do one with you in the RV on the road.
John Mason: I sure hope so. I’ve got Starlink internet. If you’re following me on LinkedIn, I’ve got Starlink internet now. I can record from everywhere, but hopefully we’ll be disconnected a little bit on this camping trip, minus, you know, a few check-ins with our marketing director, our business consultant, and I’m sure you and I will talk, you know, a couple times on the road.
Tommy Blackburn: Yeah, I’m sure we will.
John Mason: Well, today is July 1st, 2026. We’re recording a lot really quickly. We got behind because of strategic planning meeting season, so I think we recorded maybe last week, June 26th or something, so now 7/1. Next recording will be July 8th. We have a special guest that’ll be with us for one or two episodes. Embarrassingly enough, I’m wearing the exact same jacket I wore on June 26th, so I didn’t realize that, audience, so forgive me. I have changed and showered, you know, since June 26th, but I’m wearing the same outfit, I think, Tommy. Maybe a different color shirt.
Tommy Blackburn: Well, good for you for… being able to put together what you were wearing on June 26th, ’cause I have no clue. Hopefully this is a different outfit, though it wouldn’t surprise me if it was the same.
John Mason: You had a jacket on last time, so… Ah. That’s the trade… so you changed it up a bit.
Tommy Blackburn: I’ll, I’ll throw a jacket on for the next one.
John Mason: What I wanna see next time is the vest in the middle of 97-degree Williamsburg summer.
Tommy Blackburn: I have to have the AC really cranking… to make that work. For those, yeah, we’re, we’re located in Central Virginia or Southeastern Virginia—Williamsburg, Newport News, um, today, our respective locations, and summertime is hot and humid here. So wearing layers is, um, not the direction you typically go.
John Mason: Well, thanks audience as always for being on this journey with us, over 120 podcast episodes in. We’ve seen a lot of reviews and ratings come in recently, which has been great, so please keep doing all those things for us. And yeah, keep following. Send us your questions to masonfp@masonllc.net. That’s masonfp@masonllc.net. You can be part of the next show, sending those questions in advance. You can connect with us on LinkedIn—John Mason CFP, Tommy Blackburn—or follow Mason & Associates.
And if you haven’t already, little housekeeping, our e-book on survivor benefits is live. It’s available at masonllc.net, and please do not make the mistake of declining survivor benefits before you’ve checked out the e-book as well as our YouTube videos. And remember, you can be somebody’s hero by sharing both the YouTube video and the e-book with somebody who’s about to make that huge decision of declining survivor benefits at retirement.
With that being said, Tommy, let’s dive into, uh, Mailbag Episode Number Two, which I think last time we kind of alternated who read the questions. I’m gonna go… Let’s see. I’m gonna start with, with Uncle Ken, Uncle Kenny, as I used to call him when I was a little boy. Um, IRMAA, his favorite topic, and the question here is, “How do I avoid IRMAA surcharges?”
And I’ll just define what that is for the audience. We call her Aunt IRMAA. She’s a very sweet lady. She loves to penalize you, so your Medicare Part B costs money. If you are overly successful, determined by the federal government on what that means, then you have the privilege of paying more for both your Medicare Part B, as in boy, and if you are private sector, Part D, as in David, um, you get IRMAA surcharges on both of those.
Medicare kicks in at age 65, Tommy. Medicare Part A is typically free because you’ve paid for it your entire life, so it’s premium-free, Part A, but Part B is what costs money, and again, that starts at 65 for most folks. With all that being said, that’s IRMAA. That’s what it’s defined as. Um, clearly our listener is concerned about IRMAA charges, which means they’re pretty successful. They have over $200,000 a year in retirement income.
Tommy Blackburn: Absolutely. And so IRMAA can impact, you know, typically for our federal retirees, they’re on—once they get to Medicare age, as John mentioned here, it’s age sixty-five. They’re in Part A. They’ve already paid for that, no additional cost usually. Part B, um, there is a cost right now of, I think it’s two hundred, almost two hundred and three dollars a month.
And then they usually have FEHB as their supplement. Not always, but let’s just go generally here. So where I’m going with this is there is a Part D, which is a drug policy, um, and you can even have that on FEHB, depending on if you’re in that new version that essentially is a Part D plan. IRMAA can apply to Part D as well.
If you’re not in a Medicare Part D type plan, um, if it’s just traditional FEHB, IRMAA does not apply to that. Um, IRMAA, Aunt IRMAA—Income-Related Monthly Adjustment Amount—is the, the full amount for this. Um, so yeah, so John’s point, they probably have a decent bit of income, and I believe the question was, what can I do to avoid it?
You know, this—there are things we can do. A lot of this is income tax planning, but sometimes we’re so successful in our retirement and we may not—we may be limited in how much control we have. Now, John, as I think about how we answer this, I think there are six IRMAA tiers. So yes, I believe six, if I’m looking at this correctly off to the side, refreshing myself, um, because we don’t typically go through all six of them. You’re highly, highly successful if you’re in the very, very top one. But I—Congratulations… what I’m trying—Yeah. What I’m trying to lay out—You crushed it. Yeah. What I’m trying to lay out here, though, is that we can plan within each of these brackets. So it’s not uncommon for us to have clients, particularly with, um, a military retirement, where perhaps they retired from the military, perhaps they retired from the reserves, and they have a civilian pension, and they have Social Security.
They may very well—not unusual—go past that first bracket, which currently 2026 based on 2024’s numbers would be, looks like two hundred and eighteen thousand. So yeah, it’s, it’s entirely possible. Awesome retirement. Maybe we can’t do anything about that. We just have so much guaranteed income coming in.
It’s based on your adjusted, your modified adjusted gross income. Not a whole lot you can do there. There are some tools as far as hitting future ones. That’s what we’re really gonna look at. So we go through a tax projection, and we say, “Hey, we’re in the twenty-two percent bracket. Here’s the twenty-four. Here are some other surcharges that come in.” However, there’s also these lines that are when we trip one dollar over it, we hit the next IRMAA. So let’s either plan up to it via Roth conversion, what type of income we’re generating, how we take an RMD. Do we do something like a qualified charitable distribution, which means it never hits the tax return for that charitable giving as a way to, to deal with some RMDs?
So there—or if we’re gonna go over it, do we just go well over it, uh, to go ahead and smooth that cost, that IRMAA charge out to kind of get up to the next bracket? So there’s a lot of things we do there. Um, hopefully, I think essentially what I’m saying is it depends. Sometimes it’s out of our control.
However, we have a usually control over the next one, you know, getting up to that next bracket and how we plan long term from there. One which John maybe thinking to add this, but it’s on my mind, so I’ll just hit it while it’s on my mind. Um, you do have something called a life-changing event, so SSA-44, and what this says is when we have a qualified event, which is typically retirement, you can say, “Hey, ignore my prior income.”
So Medicare looks two years in the past, um, to determine what your income is for this premium purpose. You can file this form, says, “I retired. Ignore all of that. I’m gonna estimate what my income is and give it to you. Base my premium on that.” They’re gonna verify it later, but they’ll take it. Uh, you have to, you know, provide some documentation, sign an—sign that, you know, this is realistic.
But that’s one way to avoid it as well if your income’s gonna change substantially. So say we were crushing it, we did some Roth conversions, we sold some property, whatever it was, we were still working, then we retire, we file this, and we say, “Our income’s actually gonna look like this,” that’s perhaps below that threshold.
So different nuances. It’s all very situational as to what makes sense or doesn’t make sense.
John Mason: You covered a lot. You’re always very thorough, which is great. So summarizing some of the points and, and maybe one or two that you didn’t hit. It’s a two-year lookback, which I think is important for the audience to know. So, uh, Medicare planning really starts at age 63. So if you’re 63, the income in 2026 will impact your 2028 Medicare premiums. So you need to be thinking about Medicare premiums before you’re enrolling in Medicare. So keep that in mind. Um, it does automatically adjust too. So if your income goes up, your premiums go up. If your income goes down, your premiums go down. So it’s this rolling cycle. You’re not locked into it forever, Tommy, which I think is good for the audience to know.
Um, you know, continuing down, just some like thoughts here, is we don’t even really know what these IRMAA brackets are. Like, we have our best guess, but we don’t actually find out what the IRMAA brackets are in 2028 until we get to 2028. So we do our best, and we’ve had egg on our face before because the brackets have moved so substantial it can make that Roth conversion have just squeaked into an IRMAA bracket. But based on the 2024 planning that we were doing, we were well into that. We were bracket topping like nobody’s business, and it was phenomenal planning.
You wake up in 2026, you have egg on your face because the brackets move so fast. Maybe this was ’22 to ’24, you know, probably when we had all that inflation going on. So we like the idea of bracket topping, to your point, Tommy, which is taking income either up to the next tax bracket or up to the next IRMAA bracket. So you can remember that, audience, as kind of like a nice takeaway is bracket topping is, is a way to potentially avoid going into IRMAA.
You also just need to be thoughtful, right, Tommy? So right now we did a distribution, Kyle and I, yesterday for a client who is planning a wedding. Weddings are very expensive. So we paid off a car this year. That was like 50K. Now we need a wedding money. That’s like another 50K. But the only problem is it’s an IRA, so they’re not getting the full 50. So we had the conversation yesterday that said, “Well, when is the wedding?” Because we can pull out the 100 this year and stay below IRMAA, and as soon as we get into January 1, we reset, can we take out the next 50,000 in January instead of all 100 today?
And they were like, “Oh yeah, that’s completely cool.” So sometimes just staggering the distribution, straddling tax years. I mean, if it’s November, come on. We should hopefully be able to, you know, maybe kick the can a little bit to January. Um, so keep…
Tommy Blackburn: …that in…
John Mason: …mind.
Tommy Blackburn: Well, and I, I love that, John, ’cause even if we’re in November, even that’s, that’s staggering and bracket topping could be very much part of the plan and the conversation, depending on what’s presented itself, right? Where it’s like, “Hey, we got another $10,000 in this IRMAA bracket. Let me go ahead, take it. You know, leave some wiggle room. It’s a projection.” And then we know come January we’re gonna go ahead and do something to take advantage, whether it’s we have a need or we just know this is where we are. Um, yeah, I think that is, those are all great points.
John Mason: And the bracket top is so helpful because, you know, you could do a $10,000 Roth conversion, and the audience may be thinking, listening or watching, “Really, 10 grand?” And yeah, the 10 grand, guys, probably is not enhancing your retirement one bit. But next year when you say, “Oh my gosh, there’s an emergency and I need an HVAC replaced,” we can go pull from that Roth IRA. That doesn’t impact your IRMAA. So either sending it to your checking account or repositioning it.
You know, when you’re straddling those brackets, there’s no reason not to. Maybe there’s a reason. There’s a lot of good reasons to do these bracket topping distributions and conversions to bake in flexibility for the following year, and we have so many clients, Tommy, who, who are 10 or 15,000 away from hitting an IRMAA bracket before they take an IRA withdrawal. Mm-hmm. And that’s just frustrating. ‘Cause they’re so close, they’ve saved all this money, they’re well-positioned for retirement, but the second they pull anything out, they know they’re gonna trigger a penalty. So some years they need withdrawals, some years they don’t. Might as well soak up that bracket.
Maybe closing thought from me here, I have two is audience, sometimes you just have to eat it. And that means sometimes you’re just going to pay a higher Medicare Part B premium, and you can say, “I did a really good job preparing for retirement, and it is what it is.” That doesn’t mean that we’re not gonna plan smart. It doesn’t mean that we’re not gonna try to avoid excess tax. You know, our whole goal here is not to tip the IRS or the government. Got it. But if you have a million, two million, three million saved, and you are arbitrarily not taking out distributions ’cause you don’t wanna pay a $75 IRMAA penalty, you know, we would suggest that the $75 IRMAA penalty is way worth it to unlock the ability to actually enjoy all the assets that you’ve saved.
So don’t let the tax man dictate how you spend your money. Um, don’t let the IRMAA—Aunt IRMAA—dictate how you spend your money. Of course, we wanna be smart, Tommy. But we’re gonna pay less taxes and less IRMAA by never spending money. I don’t think that that’s, I don’t think that’s the definition of winning in retirement.
Tommy Blackburn: It’s not. Um, don’t let the tax tail, you know, wag the dog here. Um, it’s very important. We don’t want to leave a tip, as you said. And I would, we would say, too, so this is the benefit of long-term planning, both looking at the tactical year by year, but also looking long term. Because chances are, if we’re saying, “I’m not gonna take it because I don’t want to hit that IRMAA threshold,” well, we’re compounding the problem.
And we’re going, we might as well just say we’re gonna get there, and you’re not gonna have a choice eventually, so can we just accept that this is, this is where we have to plan? And to your point, John, you’ve been very successful. You did great things. This is, this is where you are from a tax planning perspective. Now let me work within it. We don’t need to do without, you know, harm ourselves in the process because it’s gonna show up, and it’s probably gonna show up even worse if you just continue to kick it and let the problem compound.
Um, John, a couple things. I did not think we would spend so much time on this question, but I’m, I’m loving it, is going back to that SSA-44, um, uh, perhaps it’s helpful for the audience to know, and we will walk clients, and I think this is just helpful. We’ll walk clients through this if it’s applicable. So we will identify that it’s something we should be thinking of and considering, and we will fill it out and send it to you with instructions on how to get it, um, to the Social Security Administration to do that SSA-44.
So not only will we present the idea and know that it’s something we should be doing, but we don’t just say like, “Hey, go do it yourself.” You’re welcome to if that’s how you like to roll. Some people do, but typically clients appreciate like, “Hey, we’ll go ahead. We’ll estimate the income based on what we know. We’ll send it to you.” Um, you know, basically put a bow on it so that you can take the final step and submit it. Um, so we do walk alongside you throughout that process. And now for the tricky part, because we usually operate in Zoom.
John Mason: Yeah, so real quick is we also plan for the appeal, and we cause the appeal on purpose. Yes. So like the year you’re retiring, we know that maybe you’re in a two or $300,000 income scenario. We’ll do a l—a huge Roth conversion up to the top of the 24 or wherever because we know that we’re gonna be able to use that SSA-44 to do that appeal.
So not only do we know about the appeal, we actually plan to use it and purposefully cause an IRMAA event just so we have the luxury of doing the appeal, which we know we’re going to win, which is pretty fun. And on a less fun note would be similar in like the year a spouse dies. You still have those married filing jointly tax brackets. It’s a good year to do a Roth conversion. I know it’s hard when you’re grieving the loss of a spouse or a loved one, but that’s when there’s an opportunity still to do kind of like a bracket topper, a Roth conversion.
And then Tommy’s gonna share a screen I think, um, for those of you who are watching. But we also have to remember that married filing jointly, Tommy, going to single, you know, you may not trigger an IRMAA surcharge when you’re married filing jointly, but there’s a good chance you, you would trigger that going single. So even more reason to think about the bracket topping, the conversions, and their survivorship planning.
Tommy Blackburn: Absolutely. And I think a lot of times that is missed, and it’s, uh, it brings back to the benefit of doing long-term projections of thinking, you know, we’ve got both Social Securities while we’re together. But then what also happens to our taxes when only one of us is left? So we have survivorship planning for income as well as survivorship for tax planning.
And, um, you know, without an untrained eye, you can quickly lose sight of these things and, and why, why you’re putting flexible plans in place. So let’s see if I can make this happen, John. So this is a fict—fictitious client that John and I created quite a while ago. I don’t think you can even see it on here, but it’s, um, our dogs essentially were the names that we used, but it’s helpful for these type of, uh, presentations or illustrations.
This is a, what we call a range calc, um, inside of our tax planning software, Holistiplan, and I think this was helpful as we talk of just showing as we move across the income spectrum, like here where I’ve stopped or even back here would be this scenario is we’re in the twelve percent bracket there in blue. But if we’re also pulling Social Security, we’re now in what’s called that tax torpedo because Social Security is becoming more taxable. So on paper, we’re at the twelve percent, but truly we’re at twenty-two percent to account for that.
I know that’s not the topic of this question, but can’t show the illustration without at least mentioning what’s happening there. And then eventually we have enough income that we’re also losing this enhanced senior deduction, um, as we’re going across the income spectrum. And then the purpose of relating to this question is the dotted line which I had mentioned previously. So this is that first Medicare IRMAA bracket where our projection software is saying, “Hey, you could create about fifty thousand of income and not cross that.”
Once you cross it by one dollar, you’re now gonna pay that extra Medicare premium, uh, Medicare IRMAA premiums which you see here. It’s beautifully, you know, laid out in a legend. And based on current, uh, surcharges here, you see that that would be the additional per year. And then we can plan what we’re trying to drive home here. So we have more room still in that twenty-two percent bracket if that’s what makes sense, and then about eighty-three thousand you hit the next one.
So here’s what we’re talking about of both planning, let’s say the twenty-two percent bracket here. So we could bracket top all the way by doing seventy thousand conversion or selling something creating seventy thousand of income. Or we could go eighty thousand to try to get close to that next, um, Medicare IRMAA surcharge. So a lot to unpack there, but I thought maybe a visual, um, could help drive this home a little bit, and we can certainly do more on this in the future.
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John Mason: Thank you, Tommy. I—the visual is so powerful, and tax torpedo, you see that. It kind of looks like a giant middle finger sticking up at you, you know, as I look at the illustration. So yeah, it’s—that’s maybe how it feels, too, you know? So anyhow, I think, I think we did really good there.
Moving on to question two is, can I do a Roth conversion inside of TSP? And in the interest of time, the answer to that question is yes, you can. That’s brand new in 2026, and there’s resources available, Tommy, on the TSP website. You know, I don’t know that they’re going to be able to quantify the value of a Roth conversion and whether or not it makes sense in your financial plan. So this question really should be, can I do it? And then the second question should be, does it make sense for me? Should I do it?
Similar to, similar to the, the meeting you had with your—our doctor recently, and she was like, “Well, what…” You were like, “What do you think about fish oil?” And she’s like, “Well, some people need it and some people don’t.” Kind of similar with a Roth conversion. Some people need them, some people don’t. So can I do it? Yes. Should you do it? Undefined. You know, you probably need some professional help. We have plenty of episodes talking about should you, should you not Roth convert assets.
And the short story there, Tommy, is sometimes we meet a client where Roth conversions seem to make all the sense in the world, and then five years into the relationship, it stops making sense, or vice versa. So it deals with life expectancy, retirement income, plan distributions, survivorship planning, estate planning goals, taxes while you’re alive, taxes for, um, the people who are inheriting money from you. You know, I, I listened to a podcast recently, and it just—there’s no possible way that we can answer the “does it make sense” question until we’ve gone through our entire prospect new client experience and actually developed a financial plan. So you can, and then beware of the tax issue.
Tommy Blackburn: Yeah, I think, um, as, as I think about, like, where is this potentially helpful, we need to have a relationship, we need to have a plan for you that’s gonna evolve and change. All those things are, are absolutely true and critical, is for those under fifty-nine and a half who have all of their assets inside of a retirement plan like TSP. That’s probably where it’s almost like an if-then kind of like, okay, so if that’s true, then maybe this is helpful.
Because if we were over fifty-nine and a half, well, we could roll assets out of TSP to an IRA and do a Roth conversion right there, probably with more control, more flexibility, et cetera. This is helpful for, hey, all of my retirement assets are locked because I’m too young, uh, I haven’t separated, I’m not, you know, there are exceptions here, but just say you’re working, everything’s there, you think a Roth conversion makes sense, maybe it does. Now you have an ability to do it there.
Then the other one is, do you have a way to pay the tax, to John’s point? Because we can’t have tax withheld, and even if we could, that’s gonna be an early distribution penalty, so we have to have another way to pay the tax. So a lot of nuances here. Has to be about you, your plan, does it make sense? Um, but, uh, just wanted to lay out that’s kind of the nuance to me of like, like who cares? If you’re over fifty-nine and a half, I don’t know that I would care about being able to do Roth conversions at TSP. I think it’s for the folks who are younger, all of your assets are there, where it begins to be like, okay, that’s true. Now, answer these other questions: Does it make sense, and how do we do it?
John Mason: Many 401(k) plans offer in-plan Roth conversions. Um, I think this could also be applicable for a TSP with exempt contributions in their TSP. I think we can do conversions on those, which is kind of interesting. The, the other place where I see a big win, Tommy, is I’m thirty-two years old, I’m in a 22 to 24% tax bracket, and the government’s matching me 5% pre-tax. I could do these baby conversions every year to effectively move the matching money to Roth along with my 10 to 20% Roth contributions that I’m doing.
So I see that as a big win, too, and I believe there are some, like, more sophisticated payroll software implementations that can be done around that, too. Maybe not with the federal government, but in the private sector where you can, like, opt in to pay the tax on the employer contribution so that it automatically goes Roth. I think that’s a new thing. I don’t know if that’s been implemented yet, but m- my mind says it’s there somewhere.
Tommy Blackburn: Yeah, no, I’ve—I do believe you are correct. I don’t know how widely I’ve seen that. There are a lot of things that are possible, but it’s whether or not, like, a plan allows it, so that’s the question there. And if they do allow it, John, where you have the employer portion, uh, go to Roth—the match, for example—then it would mean you’d have phantom income. They would gross up your income, um, because you’re not… Otherwise, everybody would just take a Roth employer match, so you have to be taxed on that. Um, therefore, it would be a payroll adjustment that needs to happen.
John Mason: Awesome. Well, I think we did a good job doing that one. The next question is, is the TSP G Fund a good substitute for bonds in my portfolio?
Tommy Blackburn: Is the G Fund a good substitute for bonds in the portfolio? I think yes and no. Um, it is, you know, G Fund is essentially like a short-term bond or more of a money market cash-type holding. You know, it’s, it’s unique in what it does. The reason I say—So it, it does act as a ballast. It does offer preservation protection, keeps up with inflation most likely is what you’re essentially gonna get there. Little to no risk, I guess about as risk-free as you can probably get. It’s essentially cash again.
What it doesn’t do that a bond does is in times of stress in the market, usually bonds appreciate, and the reason is, is because there’s a flight to those sa-safer assets. As demand goes up, it drives the interest rate down on these, and they appreciate. G Fund is never gonna do that. G Fund is set as to what it’s worth, so it will not go down when there’s stress in the market, but it’s not gonna actually act as the counterweight. Um, and it’s, you know, interest rates that you’re gonna get on longer-term bonds are probably gonna be a higher interest rate, um, just how that tends to work for going out further in your maturity. So yes and no. It serves a purpose. It can serve a purpose, but it is not going to behave with all the same characteristics that a bond fund would typically behave with.
John Mason: Agree. Not surprising, ’cause we’re business partners and, you know, have similar thoughts on this stuff. Generally speaking, Tommy, when we’re designing a TSP allocation, we’re gonna include both an allocation to G Fund and F as in Frank or Foxtrot, and the reason is, you know, you miss some upside potential, but you have steady growth. So I don’t remember offhand exactly what we do, but let, let’s just say hypothetically it was like 50 to 70% G Fund for the bond allocation, and then 30 to 50% in the F Fund, like Foxtrot, for the bond allocation. Um, so G and F, 30—30 to 50% in F, maybe 50 to 70% in G.
This is not investment advice, just giving you some ideas. An example. Like, it is nice to have guaranteed return. It is nice to have a thing that never goes down in value, at least on paper, and certainly that came into play in 2022 when you saw the giant spike in interest rates. So we’re gonna, we’re gonna get in a little frisky here, because now I’m gonna share my screen for those who are watching. And let’s see here, share entire screen, and we’re gonna go here.
So we’re, now we’re looking at… I asked Google Gemini, Tommy, hopefully you can see this okay, to kind of give me what if we invested $100,000 in the F as in Frank and the G as in golf in 2016, and you can probably see on this screen here that, um, the blue was the F Fund that when interest rates were dropping ’17 through ’20, I mean, we were really ahead of the ball game with the F Fund. But then 2022 happened, interest rates spiked, bonds went down, and for all intents and purposes, we’ve gotten to the same place. So G Fund and F Fund, the total return since 2016, if Google Gemini is accurate, appears to be almost identical.
We’re certainly not gonna encourage market timing here, but you could probably see, like, if you were all in F here, and then all in G here, and then all in F since then, that would’ve been perfect. Y- good luck doing that. Um, having some exposure to both is probably where you wanna be.
Tommy Blackburn: Yes. And yeah, there’s, yeah, a whole lot you can unpack there, kind of like when do we pick a starting period versus an ending period and come up with completely different answers. Um, was 2022, ’23 like an odd time for bonds or a… Certainly not impossible. It happened, um, but probably not typical for bonds. So all that to say, like, you can—the investment stuff can be very misleading depending on how you wanna look at it, but I think we answered the question. They both have a place.
John Mason: And past performance is no guarantee of future results.
Tommy Blackburn: Exactly. Right?
John Mason: So, and, and in no way, shape, or form is this investment advice, Tommy, right? So we have to have our disclaimers out there. I know we’ll have our, um, founder, Mike Mason, come on at the very end of the podcast with all those disclaimers, too, and his well-thought-out, you know, very nice radio voice that, that we could only a-aspire to have one day.
Tommy Blackburn: Yeah. That’s a good, good thing to aspire to. You’re correct.
John Mason: All right. Next question. We have two more, audience. Thanks for bearing with us. “I’m a former CSRS employee. How does Social Security work for me, and what should I know about the Windfall Elimination Provision and the Government Pension Offset?” So WEP and GPO.
First, I’m gonna answer this with you could go to… Oh, what’s that website, Tommy? We wrote an article on it. It’s not, um, a—What was it? I’ll think of it in a second. But we wrote an article. We’ll, we’ll make sure we link that article. Zoe’s listening, so we’ll link the article where we talked about the elimination of WEP and GPO as well as the, um—
Tommy Blackburn: Potential tax surprise—
John Mason: —the tax impact of that. So we’ll link that in the show notes and include that on the YouTube channel, et cetera. So check that out, audience, for sure, and then we’ll do kind of a summary here as well.
Tommy Blackburn: Yeah. Well, I guess, John, as I read the question, and I’m curious when we received this, um, because really WEP and GPO, so we can talk about it, but they don’t really apply anymore. So Social Security Fairness Act, which is what that article gets into, is, and you know, we usually put quotes around fairness because that’s certainly in the beholder’s eye as to what’s fair and what’s not fair. Uh, kind of a, you know, who knows what that means. But anyway, eliminated it. So those no longer apply.
It used to be, um, if you did not contribute to Social Security, um, while you were working, these things came into play. So CSRS, you know, Windfall Elimination Provision, a Government Pension Offset. I just, I’m hesitant to go too far into them because it’s like, what’s the point when they don’t apply anymore? I guess we should just because we had the question.
John Mason: Well, we can, we can at least say, and the article was FedSmith. That’s the—
Tommy Blackburn: There you go—
John Mason: —that’s where we had the nice article, and we actually have it on our website as well, masonllc.net. So WEP, W-E-P, used to reduce your own Social Security because you had a non-covered pension like a CSRS or New Jersey or what have you. That’s gone. So if you are in that category before, your Social Security benefits just go up. Um, whether you’re already receiving them or you will receive them later, they’re just automatically going to go up. And then your spouse, if they were receiving benefits based on your WEP-adjusted benefit, their benefit goes up, too. All of that should have happened automatically with the passage of the Social Security Fairness Act.
Where we have a little bit of an issue is more on the Government Pension Offset elimination. So GPO said you can’t receive benefits from a spouse, whether it be survivor or spousal—
Tommy Blackburn: So this is your spouse worked Social Security, right? Or they had a Social Security job. Say they were a teacher, for example. They had their own Social Security benefit. The rules for Social Security say you’re entitled to the larger of your benefit of ha—or half of your spouse. Government Pension Offset now looks and says, “Well, John, you had that non-covered pension, so essentially you’re not gonna get half of your spouse’s.” That’s what GPO did.
John Mason: Exactly. And with the elimination of GPO, unfortunately nothing automatic happened. So you don’t automatically just start getting survivor benefits. You don’t automatically just start getting spousal benefits. Now, there’s some nuances here where, like, if you were already receiving your own benefit—
Tommy Blackburn: Then it should be essentially—
John Mason: And then all of a—
Tommy Blackburn: —sudden, like—were you already in the system, essentially?
John Mason: Right. But it’s not automatic. So if you were a GPO person, like you never worked into Social Security, nobody’s reaching out to you and saying, “Hey, Tommy, please take some money.” You’re eligible now. You gotta go get it.
Tommy Blackburn: You have to file an application. Yeah, you, you have to, you have to actively go get it. I wanted to go back on WEP since we’re going through it a little bit, um, just to—You’ve covered it great. That s—that scenario, you had the non-covered pension, and it’s that you had a covered, um, employment afterwards. So you did a second career. Say you retired from the federal government, CSRS, then you went and you did contract work. You built up your own Social Security benefit.
The way WEP worked is it, it said like, “Okay, how many substantial years do you have?” We do this calculation based on bend points and decide that you don’t get what the statement says because we adjust essentially for all of this non-covered work and pension that you have from that time. Um, and a lot of people felt that was unfair, particularly when you see on a statement one number and then you’re told you get a reduced number. But that no longer applies.
John Mason: Agreed. Well, I think we did a good job hitting that. This last question, you know, we’re expecting 100 to 190,000 in required minimum distributions. I mean, that’s a big range. Yeah. We’re expecting one or two. Like, that’s double. That’s huge. Yeah.
So we probably need to tighten that up some. Thank you for the question, by the way, so we’re not picking on you. And again, we promise if you send questions in to Mason FP, we may have a little fun with them, but they’re, hopefully you’re not offended by our fun. Um, 100 to 190,000 in RMDs, how do we plan for the, the tax hit?
And I think the simplest answer here, Tommy, is we design a financial plan that’s designed to go 30 years into the future, and that financial plan has a lot of thoughts and ideas on how we get the ship fro—all the way across the Atlantic Ocean to the other side. But every day we wake up, we have to make a small tweak to the plan. So you have the long-term vision, and then you have the annual tactical adjustments that you need to do. The same is true with a tax plan. Mm-hmm.
Remember, you can’t have a financial plan without a tax plan. So if we have a 30-year strategic financial planning vision, that means we have a 30-year strategic tax planning vision as well, and it’s our responsibility as consumers and planners and the people we work with, excuse me, we’re looking at this every year. This is not a surprise, and we’re gonna start doing… Maybe, maybe where they are in their plan, 100 to 190,000 doesn’t blow anything up. Like, if they already have a million dollars of retirement income, I don’t know that throwing a $100,000— Uh-huh. —RMD on top of it is that significant.
Tommy Blackburn: Nothing, nothing’s changing for you. Yeah. You—
John Mason: Right. But if you have—
Tommy Blackburn: —’re in the top bracket…
John Mason: …$0 of income, and now you’re at 200, well, that’s, that’s a horse of a different color. So we need some context behind it. Just being said, like, there’s a long-term strategic vision with annual tactical adjustments—that’s how you plan for it. And if we can reduce your total tax bill over your lifetime, you know, or reduce the inheritance tax bill for your children or grandchildren or whomever—
Tommy Blackburn: What’s important to you—
John Mason: —that’s what we wanna do.
Tommy Blackburn: Yeah. It’s… You’re absolutely right. It’s so circumstantial or situational, and my guess is maybe they mean, like, I’m gonna start at 100,000, and as I go through time, it’s gonna climb to 190, which, you know, very well could happen. The amount you’re forced to take gets heavier as you go. Um, we look, we look out, and we just see, like, are we gonna have for, like, what we call a tax bomb go off when we get to RMD age of 75?
Essentially, like, do we have this window before we get there, and it makes sense for us to smooth this out and do things ahead of time? Or to John’s point, is it just you’ve built an incredible thing, and there’s not a whole lot you can do about it, or it doesn’t change much? Then it is what it is. Um, actually, I know we wanna move quickly here, but I have to… I’m thinking back to earlier in my career, this anecdotal story that I think is, was, makes me chuckle to this day is, had a client, RMDs are happening, and she sends me this Wall Street Journal article, and they’re talking about things you can do about RMDs.
And one of them was QCDs, qualified charitable distributions, and, like, all the benefits of qualified charitable distributions. We’re big fans of that. Tax-free distribution from an IRA to a charity, counts against the RMD, doesn’t hit the tax return. It’s wonderful. And she, she’s like, “Why aren’t we doing this?” And I was like, “Well, you’re not charitable to my understanding.” Like, yeah, I’m happy to implement this, walk you through it, plan around it. We’ve mentioned it. You’ve come back that you have no interest in charitable giving, which is fine as well. It’s like giving is still giving. So you… Yes, this is a tax-advantaged way to give, but you’re still going to have less money than if you just paid the tax under that scenario.
So I just share, funny story to me was like, you know, it is all very circumstantial. There are things we can do, but maybe strategies don’t apply to you ’cause that’s not what’s important to you.
John Mason: I knew… As soon as you started talking, I knew the exact story you were going to. And, you know, we—we’re not doctors or attorneys, but we are practicing financial planners who give tax advice. And, you know, to me, the prescription or the solution or the, the fix, if you will, has to be appropriate for the problem that you’re trying to solve, right? So you don’t—and audience, don’t barbecue me—but if you have type 2 diabetes, we’re probably not prescribing a statin unless you also have high cholesterol, right?
So the prescription should fix the problem or more than one problem. And in your specific case, Tommy, if, if the prescribed solution was QCDs for somebody who’s never given a dime to charity, you know, we’re, we’re tackling the wrong biomarker here. We are, we are way off solving things—
Tommy Blackburn: Oh, yeah.
John Mason: —that didn’t need to be solved.
Tommy Blackburn: Yeah, I think when I laid it out to her, I was like, “Would you like to do some charitable giving?” I guess— No. …we had this conversation. She’s like, “No. Just pay the tax.” So that’s also why it’s good to have an advisor, right? Like, you read these things, you see these things, people at the water cooler tell you something, and then you can go talk to somebody who knows you and your situation, who can, like, lay it out. Same thing with the doctor that John was referencing, was like, “Well, it’s all individualized medicine, so what works for you isn’t what works for somebody else.”
John Mason: Well, let’s wrap it, man. Any closing thoughts?
Tommy Blackburn: I think this is great. Um, I hope that the audience is enjoying it. I hope we’re doing a good job of answering these questions, both, um, in an actionable way. Hopefully, it, it does give people some action, as well as entertaining, succinct, digestible. I hope we are accomplishing all that, and really appreciate these mailbag questions. So please, send us more. It, um, it honestly makes our jobs easier, because we don’t have to map out an episode. We can just run through these questions, which is hopefully what you also wanna hear. So my takeaway is just please keep it coming. We enjoy it.
John Mason: Agreed. Masonfp@masonllc.net, or connect with us on LinkedIn. I wrote down we hope, obviously, to empower and inspire, you know, the people who are watching and listening to this podcast. And in the world of AI, you can ask all these questions to ChatGPT, and they’re gonna give you an answer. Gemini is gonna give you an answer. Google is gonna give you an answer. Where I think we really set ourselves apart, audience, is we know the answers, and then we have stories and decades of experience that we can share with you on how we’ve helped real people actually navigate that solution.
To my knowledge, I don’t know that ChatGPT can do that yet. Maybe one day it’ll be able to, but, you know, we’re talking decades of experience serving real people, helping them navigate these decisions, helping them figure out where to go on vacation, how to spend their money, what their goals are, and that’s what we hope to do. So yes, we’re long-winded. We answered these questions. We could’ve done it a lot faster in maybe seven minutes, but it took 43, because we wanna share the stories of life with you, not just give you what you could’ve found on Google or ChatGPT.
So are you ready to move from general education to personalized advice? You can d- start that process at masonllc.net or 757-223-9898. If you’re not ready to take that step, that’s completely cool. Keep hanging out with us right here on YouTube and the Federal Employee Financial Planning Podcast. Do all the things—like, subscribe, connect with us on LinkedIn. And please, please, please remember this is not financial planning advice, but we do hope to inspire you to make positive changes in your financial plan.
Remember, we’re financial planners first, we do this second, and we hope you leave this episode and every episode feeling educated and empowered to make positive changes in your financial plan. Thanks for hanging out with us again on another episode of the Federal Employee Financial Planning Podcast.
The topics discussed on this podcast represent our best understanding of federal benefits and are for informational and educational purposes only, and should not be construed as investment, financial planning, or other professional advice.
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