*** Updated 1/2/2013 with the ‘Fiscal Cliff Deal‘, updates in italics ***

Fiscal Cliff Deal Notes (Part Two) –

As promised, I’ve run the numbers on what the Fiscal Cliff (aka Sequestration, aka Taxmageddon) will cost Joe and Jane Sixpack.

There’s no chance of a deal being worked out by the lame duck Congress.  Both sides are too far apart and there are too few work days left in the year.  If you disagree with me, then I’ve got some arid mountain land to sell you in Florida.  (Update 1/2/2013, I was right about the Year, but wrong about the lame duck congress not making a deal before the new congress being sworn in).

So it’s time to brace for impact.  Crunching the numbers as promised, here are the assumptions:

  • Mid-grade Federal Employee, married w/2 kids, living on the West Coast or an expensive area like Washington DC (this covers over half of active Federal Employees).
  • Itemized deductions of $31,000 (reasonable assumption for areas with expensive mortgages).
  • 4 exemptions claimed
  • Annual Long Term Capital Gains of $8000.
  • Annual Qualified Dividends of $2600.
  • Health Care Flex Spending Account election of $5,000 in 2012 (capped at $2,500 in 2013).

Here are the calculations:

Holy Schnikes!  Looks like I’ll be paying Uncle Sam another $4k $3k next year for the same amount of work.   Note that these calculations can apply to just about anyone in the current 25% marginal bracket- just knock of the anticipated 0.4 percent hike in FERS annuity contributions.  (1/1/2013 Update Notes: still plenty of uncertainty about FERS contributions, still some uncertainty with the Executive Order-ed 0.5 percent pay increase for federal employees).

Feel free to plug in your own numbers plug in the new numbers to see how the ‘Fiscal Cliff Deal’ Sequestration will affect you.  Enjoy!

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It’s Wabbit Open Season for Federal Employees.  Each year I look at my Federal Employee Health Benefit (FEHB) choice, my Health Care Flex Spending Account (FSA) election, and my Dependent Care FSA election.  Sock away too much FSA money and you’ll never get it back.  Sock away too little FSA money and you’re leaving a free discount- as much as 35% in tax savings- on the table for Dependent Care and Medical expenses.

Dependent Care FSA is easy- Figure out how much in allowable tuition and fees you will spend next calendar year on your young child, then make the election.   As Drew Rosenhaus would say, “Next Question”!

Next up is a much more complex choice- your FEHB plan and its associated Medical FSA.  In order to figure out how much (or if) you will elect for your 2013 Health Care FSA, you first have to figure out what health plan you will use. I’ve been using the (free) PlanSmartChoice analysis tool provided to Federal Employees to compare health care plans and their associated costs.  The first step is to gather the necessary data for entry.

Log in to your mint.com account and look at your spending on Health Care costs for the last 12 months:

As you can see, my family is using a 3rd party discount plan for  Dental Insurance.  We’re happy with all the choices it provides, but we’ve been paying a lot out of pocket for dental!  Click on the ‘Transactons’ link to get a listing of how many Dentist, Doctor, and Pharmacist visits you’ve had in the last 12 months… In our case it is ~$900 in Dental Visits plus Dental Insurance Premiums (plus ~$700 in non-covered Orthodontic Devices).  We’ll plug the medical and dental visits and $$ in to the PlanSmartChoice engine.

Next is to log in to the PlanSmartChoice website.  Enter your personal data (don’t worry- they only email you once per year to let you know the site is ‘live’ for the next Open Season)  here:

Don’t forget to enter the info (number of Doctor visits and Prescriptions) for your dependents as well.

Next up, Choose the types of plans you are interested in (HMO, HDHP, PPO etc), or leave it set to the default value (‘Any’).  You’ll get the full listing of available Health Plans and what their Estimated Total Costs (Premiums Plus Out-of-Pocket) for the year are.  You can sort by Total Cost, Plan Type, etc:


In my case, I scrolled down the page to compare my existing plan- Blue Cross Blue Shield Basic (Code 112) to Aetna HealthFund HDHP/HSA (Code 225), because I’m considering switching to an HSA next year:

(*** IMPORTANT SIDEBAR ***  You’re a Sucka if you consider any health care insurer who is not a household name.  Why? If you choose the ‘Midwestern Radiological Workers Union Plan’ or ‘Health Insurance for Rural Postal Clerks’, the receptionists and billing clerks at your doctor’s office have NO CLUE how to enter the medical coding and billing info in to their database- you’re going to get hosed and spend half your waking hours fighting billing discrepancies.   My family found this out the hard way- don’t be distracted by the ‘quality awards’ or ‘consumer awards’!)

On the surface, it looks like the plans are pretty equal- $4854 in Total Cost for the Aetna HDHP/HSA vs $5031 to stay with BCBS.   If your choice is a  ‘conventional’ Health Plan (non-HDHP/HSA), you could plug this number (the Out-of-Pocket Costs) in as your Health Care FSA election.

But there are two flaws with the PlanSmartChoice comparison tool in my family’s case.

First, the comparison tool does not account for the employer’s $1500 annual HSA ‘kickback’ contribution (shown in red circle, upper right).  This reduces the Total Cost of the HDHP/HSA by $1500 to $3354.

Halftime Score:

BCBS Estimated Total Cost: $5031
Aetna Healthfund Estimated Total Cost: $3354
Aetna HDHP Savings: $1677

Second, Dental.  The PlanSmartChoice Health Plan Comparison tool does not let you do an apples-to-apples comparison of dental benefits within health plans (it directs you to a separate tab to compare the purchase of separate FEHB dental plans).  Well, some Health Plans (like Aetna HDHP) provide 100% preventative dental (exam, cleaning, xray) coverage, while some plans (like my current BCBS ‘Basic’ Health Plan) provide virtually nothing.  Note that in the last year I paid about $900 in 3rd party Dental Insurance premiums and preventative dental treatments.  If next year is anything like this year and I keep BCBS ‘Basic’ Health coverage, I’ll have to add $900 to the Estimated Total Cost of BCBS.

Final Score:

BCBS Estimated Total Cost: $5931
Aetna Healthfund Estimated Total Cost: $3354
Aetna HDHP Savings: $2577

Wow.  The savings in the Aetna HDHP/HSA will almost pay for Junior GubMints’ braces next year.  Plus, I can do a one-time ‘Qualified Funding Distribution‘ (tax-free transfer of funds) from my existing IRA to an HSA in order to ‘pad’ the 2013 HSA account balance (up to $6450 for the year).  Assuming all of our favorite doctors and providers are on the Aetna list, it looks like we’re making the switch to an HDHP/HSA next year!

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There has been a lot of jibber-jabber about the effects of the federal budget sequestration ‘Fiscal Cliff‘, aka ‘Taxmageddon’, but to date I have found very little detailed anaylysis regarding its effect on the Federal Employee. So here goes…

I’m disappointed that NARFE or one of the government employee unions has yet to present a comprehensive, detailed breakdown of how all the proposed laws/orders will directly affect the Federal Employee’s wallet.  In their defense, there is a mishmash of laws, proposed bills, and executive orders to sift through.  If you’re a Govvie, give thanks that you’re not a defense contractor waiting for a layoff notice that may or may not come due to the muddied interpretations of the WARN act.

Sorry, Back to the topic.   I’m not an attorney or CPA, but in the interest of my own wallet, here’s how I see the proposals affecting a mid-career Federal Employee in 2013.  Note that most of these proposals hit Mr. and Mrs. Joe and Jane Sixpack in the private sector as well:


2012 Status

2013 Status


of Bush
Tax Cuts
– Marginal Rate
25% (MFJ) 27% (MFJ) Increased Marginal Rate of 2%
Expiration of Bush Tax Cuts – LT Capital Gains LT Capital Gains -€“ 15% 20.00% Increase on LTCG of 5%
Expiration of Bush Tax Cuts – Dividends 15.00% 20.00% Increase on Dividends of 5%
of Payroll Tax Holiday
4.2% of wages under $110K 6.2% of wages under $110K Increase of 2% on first $110K of wages
Federal Pay
No Change No Change No Change
Increase FERS
Annuity Witholding
0.00% 0.40% Increased withholding of 0.4% of wages
Non-sequestration effects:
FEHB Increase of 3.7% Status quo Avg. Premium increase of 3.7% Increased FEHB premium by 3.7%
ObamaCare 50% cut to Medical FSA FSA Limit of $5,000 FSA Limit of $2,500 An additional $2500 in wages potentially taxed.

My goal for Part Two of the analysis is to provide a detailed breakdown like the Bush Tax Cut analysis shown here:

(Update 12/1/2012) Stay Tuned for Part Two!

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There are some items about the TSP I do not like (limited investment choices), but the pluses of the TSP far outweigh the minuses.  In fact, as long as I live, I swear I will NEVER pull 100% of my funds out of the TSP.

Why? Even if you leave Federal Service before your minimum retirement age (i.e. you resign or quit), you are still eligible for LIFE to retain the benefit of your TSP account (as long as you keep a minimum account balance of $200 in the TSP).

Here’s why you should NEVER completely exit your TSP:

  • At retirement, the TSP can be easily be converted to an annuity, with industry-leading low expenses.
  • If you are no longer working for Uncle Sam, you may roll money OUT out of the TSP at any time to an IRA or your current employer’s 401k (in tax jargon this is a “Trustee-to-Trustee transfer”, a non-taxable event).  If this is your case, roll some money out of the TSP if you would like more flexibility in investment choices (IRA) or if you like the investment options and expenses of your current employer’s Qualified Plan (i.e. 401k).
  • The TSP will permit you to roll retirement funds back IN to the TSP at any time from an IRA or Qualified Plan.
  • TSP has the G fund, which is the best vehicle anywhere to park your short-term money. The G-fund gives you guaranteed returns equivalent to a 3-year CD combined with the liquidity of a money market fund. There’s no other financial product like it available.

Bottom line: even if you leave the employment of Uncle Sam, don’t leave the TSP.

For further reading on the many methods of withdrawing TSP funds: Withdrawing Your TSP Account After Leaving Federal Service

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