I want to retire from federal law enforcement at age 50 with 26 years. I want to leave my money in TSP and begin drawing it at a later age, say 54 1/2? Can I leave my money in TSP, let TSP do my calculations based on life expectancy when I want to start withdrawing and have that meet the 72T withdrawl criteria? Also, it is my understanding that once you begin 72T withdrawls you can not change them for 5 years or is it until you reach age 59 1/2 or both? At age 60 would I then be able to switch to monthly payments of my choice?
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72 T Rules
- Thread starter ConAirMan
- Start date
Welcome SteveS. I saw you put this in the "Ask Tom" forum, but I'm not really a retirement expert so I moved it here where hopefully more will see it.
I want to say, yes, you can leave it in the TSP until you are ready to do a 72T, but I'll let those who may know better respond.
Here's a link to some 72T info: http://www.dinkytown.net/java/Retire72T.html
I want to say, yes, you can leave it in the TSP until you are ready to do a 72T, but I'll let those who may know better respond.
Here's a link to some 72T info: http://www.dinkytown.net/java/Retire72T.html
Texarkandy
Member
I am a 50 yr old retired fed LEO & began receiving "life-expectancy" payments from TSP just this year.
Once begun as "life-expectancy" payments the payments must continue for five years or age 59.5 - whichever is later. After that time you may change to monthly payments of your choosing.
From what I understand it depends on how TSP codes your 1099 for the year whether or not you will have to file additional paperwork to substantiate the payments you received meet the requirements of 72t - and thus exempt from the 10% early withdrawal penalty.
I have been unable to get specific information from TSP as to how they will code my 1099 in this situation, although both the TSP literature & the IRS regs I have found say the payments will be penalty exempt.
Ask me again in January & I'll let you know how they coded my 1099.
Once begun as "life-expectancy" payments the payments must continue for five years or age 59.5 - whichever is later. After that time you may change to monthly payments of your choosing.
From what I understand it depends on how TSP codes your 1099 for the year whether or not you will have to file additional paperwork to substantiate the payments you received meet the requirements of 72t - and thus exempt from the 10% early withdrawal penalty.
I have been unable to get specific information from TSP as to how they will code my 1099 in this situation, although both the TSP literature & the IRS regs I have found say the payments will be penalty exempt.
Ask me again in January & I'll let you know how they coded my 1099.
Steadygain
TSP Elite
Gosh !!! You guys are something esle.
That is simply amazing !!!
WOW -- 50 is like the 'ultimate prime of life' to me. That's about the time you're old enough to finally understand LIFE well enough to know how to live and make the most out of the years to come.
I hope you both the very best !!!
My little scadoodles were (and are) still in college when I hit 50 - and I had no other choice but to keep working -- to keep them out of debt. So with me it's up at 4 in the morning millking the cows by hand, using the washboard to clean the clothes, and walking 7 miles in bare feet to catch the bus to work.
Thanks a bunch Texarkandy. Your strategy sounds exactly like I what I want to do? Once we switch to regular payments will we be able to change/ adjust them on a yearly basis? I would assume we could but you probably know what assume means. Again thanks and let me know how they code your 1099.
clester
Well-known member
My understanding is that if you pick the TSP option for life expectancy it will be coded appropriately but if you pick monthly payments based on a 72t formula they will code it as an early withdrawal.
You will just need to file the form to claim the exemption which is 5329? I think?
This is my scenario.
Texarkandy
Member
I'm doing TSP life-expectancy payments, so hopefully it will be coded as such and no prob.
Do you think the filing of a 5329 trips a flag at the IRS for further review?
clester
Well-known member
Maybe. Guess I'll find out. I have all the docs I need though, but I hope I won't need them.
This is an article that I think confirms our thoughts on the life expectancy withdrawls, 72(t), from the TSP plan.
http://www.myfederalretirement.com/public/767.cfm
http://www.myfederalretirement.com/public/767.cfm
Texarkandy
Member
As to "life-expectancy" payments directly from TSP before the age of 55 being exempt from the 10% early withdrawal penalty -I am relying on this: http://www.irs.gov/publications/p721/ar02.html#en_US_publink1000228248
Note that it says any of the following - not all, or some combination, of the following.
*
(bolding added for emphasis)
Note that it says any of the following - not all, or some combination, of the following.
*
I will be 50 in six months and plan to retire early under the ATC retirement.
Here is my understanding of the 72(t) and TSP. I desire to keep my money in the TSP but take the maximum allowed monthly under the 72(t) rules which would be using the amortization calculation method.
Anyway, when we file our TSP-70 to get the payments, on Line 23 we can either insert a dollar amount we wish to take out, or check the box that reads 'Compute My Payments' or something like that.
As I understand, if we check the box for them to compute for us, they will calculate a monthly payment that is basically the MINIMUM allowed 72(t) distribution based solely on life expectancy. With this method, the monthly amount is recalculated yearly AND the 1099 we get will be coded properly for the exception. For a rough example, with a 500k balance, this method would yield roughly 14k/year right now.
Now, if we want to get the MAXIMUM monthly amount possible, then we would have to do like I plan. That is DO NOT check that “compute my payment” box, but instead put in a dollar amount that is derived from us doing the calculations ourselves using the amortization method. This will result in obtaining the maximum monthly payout from your TSP under the 72(t) rules. With this method, our 1099 WILL NOT be properly coded for the exception and we will then have to file form 5329 when we file our 1040 to get the 10% penalty exception. The form looks easy enough. Line 1 - Amount received, Line 2 - How much of that amount is penalty exempt (all of it), and then a box for an exemption code which in our case will be 2 for a SEPP. Now, with this method, we CAN NOT, I repeat... CAN NOT recalculate yearly as that would result in us busting our 72(t) and having to pay the early withdrawal penalties on all money taken to date. As a comparison, on a 500K account, the amortization method would yield somewhere around 22k/year right now. That 8k/year difference is at least a car payment!
If anyone sees anything incorrect about what I posted above.. PLEASE set me straight as this is what my research has shown me to date. I just want to be sure I am on the right track.
BTW Clester. Our retirement place is in your neck of the woods just south of Rogersville just a bit.
Thanks.
Here is my understanding of the 72(t) and TSP. I desire to keep my money in the TSP but take the maximum allowed monthly under the 72(t) rules which would be using the amortization calculation method.
Anyway, when we file our TSP-70 to get the payments, on Line 23 we can either insert a dollar amount we wish to take out, or check the box that reads 'Compute My Payments' or something like that.
As I understand, if we check the box for them to compute for us, they will calculate a monthly payment that is basically the MINIMUM allowed 72(t) distribution based solely on life expectancy. With this method, the monthly amount is recalculated yearly AND the 1099 we get will be coded properly for the exception. For a rough example, with a 500k balance, this method would yield roughly 14k/year right now.
Now, if we want to get the MAXIMUM monthly amount possible, then we would have to do like I plan. That is DO NOT check that “compute my payment” box, but instead put in a dollar amount that is derived from us doing the calculations ourselves using the amortization method. This will result in obtaining the maximum monthly payout from your TSP under the 72(t) rules. With this method, our 1099 WILL NOT be properly coded for the exception and we will then have to file form 5329 when we file our 1040 to get the 10% penalty exception. The form looks easy enough. Line 1 - Amount received, Line 2 - How much of that amount is penalty exempt (all of it), and then a box for an exemption code which in our case will be 2 for a SEPP. Now, with this method, we CAN NOT, I repeat... CAN NOT recalculate yearly as that would result in us busting our 72(t) and having to pay the early withdrawal penalties on all money taken to date. As a comparison, on a 500K account, the amortization method would yield somewhere around 22k/year right now. That 8k/year difference is at least a car payment!
If anyone sees anything incorrect about what I posted above.. PLEASE set me straight as this is what my research has shown me to date. I just want to be sure I am on the right track.
BTW Clester. Our retirement place is in your neck of the woods just south of Rogersville just a bit.
Thanks.
clester
Well-known member
Sounds like you have a good handle on it. At age 59.5 you can start changing your payments each dec to whatever you want fir that year.
This will be my first year filing the 5329. I hope I don't get audited. You need to keep documentation on your calcs etc just in case.
I'll keep you informed.
Where are you working gmace?
This will be my first year filing the 5329. I hope I don't get audited. You need to keep documentation on your calcs etc just in case.
I'll keep you informed.
Where are you working gmace?
clester
Well-known member
Nice. i had 8 years at ZTL before coming to tri atct.
24 years, all controlling at ZDC. I work the GVE/TEC sectors and the CLT/ATL flows, so we may have talked over the years.
I did put in a bid for a sup job at TYS about two years ago. I thought if I could stay working and still move to east TN, I might stay til 55. But now, glad it didn't work out that way. Now I'll move to east TN with nothing but fishing on my schedule.
Texarkandy
Member
1099-R came from TSP yesterday - Block 7 (Distribution Code) is coded with a "2" for "Early Withdrawal - Exception Applies" -
So appears I'm good to go with not having to justify to IRS why/how the 10% penalty does not apply to me. Yea!
Cool. Just to clarify, when you filled out your TSP-70 you selected the box to have TSP do your calculations resulting in minimum distribution? Correct
Has anyone who did their own 72(t) calculations using the amortization method and inserted that into the monthly withdrawal box get their 1099 yet? How did that show for you.
