- The Washington Times - Tuesday, January 15, 2008

Looking for a super-safe place to stash extra cash with a 12-month guaranteed interest rate of 4.87 percent?

How about an account where you can deposit money and, when you retire, pay taxes only on the interest earned?

Would you prefer a safe haven where you can contribute almost any amount — in minimum increments of $25 — any time you like and then use those contributions to boost your lifetime civil service retirement check?

The good news is that all three options are available in the equivalent of a government-backed CD called the Voluntary Contributions program. The VC is separate from the better-known Thrift Savings Plan, which is Uncle Sam’s giant 401(k) plan. The TSP is open to all federal and military personnel, and contributions are tax-deferred. More than 3 million people have TSP accounts.

By contrast, the VC program is almost a secret. It is open only to employees who are covered by the Civil Service Retirement System. Although more than 600,000 CSRS employees are still on the job, only about 13,000 have the VC accounts.



The VC program is ideal for people who come into a lot of money — like an inheritance — and want to put it to work in a safe place. Eligible CSRS employees can invest up to 10 percent of their lifetime federal earnings. One worker recently invested more than $200,000 in the program, a tribute to his frugality, his investment prowess or good luck being born into an affluent family.

Money invested in the VC program — by check sent to your account maintained by the Office of Personnel Management — earns a fixed 12-month rate. For 2008, that guaranteed rate is 4.875 percent. Last year, it was 4.95 percent. In times of high inflation, it has paid a 12-month guaranteed rate of as much as 13 percent.

VC investors have several options. They can take the money out any time, but only the full amount one time. Most people do it right before they retire, paying taxes only on the interest they’ve earned.

Contributions to the VC also can be used to boost a lifetime federal retirement check, although that extra amount is not — like regular civil-service benefits — indexed to rise to keep pace with the cost of living. The amount of the pension add-on depends on the age at the time of retirement and the amount in the VC account. A 67-year-old with $100,000 in the account could boost his or her annuity by about $78 a month. That works for some people, but benefits specialist Tammy Flanagan, with the Rockville-based National Institute of Transition Planning, says 95 percent take their money out of their TSP account before or at the time of retirement.

Another option you should consider only after talking with a good financial planner is rolling the VC money into an individual retirement account and then — with the advice of a pro — putting it into a Roth IRA.

The VC program isn’t for everyone, even if you are otherwise qualified. The IRA and Roth IRA options also require lots of thought and planning. But it is important that the 600,000 CSRS employees, most of whom are at or within a couple of years of retirement eligibility, know their options. If you have access to a computer you can check out Miss Flanagan’s article in the May 5, 2006, issue of Government Executive, by going to www.govexec.com /dailyfed/0506/050506rp.htm.

Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or mcausey @federalnewsradio.com.

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