Leaving funds in TSP and taking 72t withdrawals

[clester]

Clester,

You seem to be a plethora of knowledge... simple question as I am in a similiar boat to yours... next year I will be an ATCS retiring at 50 after 27 years... the TSP 72t... how do I figure it and are there minimum and maximum amounts... child support and ex's house are expensive and I want to make sure I have this thing figured out... already got the offset and annuity figured but I need more and believe the 72t might do it... thanks... DA FIREANT

The 72t isn't as good as it was because interest rates are so low. It is a life expectancy formula and you can take 3 options.

Minimum distribution, which tsp will calculate for you. Amortization and annuitization methods figure in future profits and therefore usually give higher payouts. The best place to go for info and calculators is 72t.Net |IRC Section 72(t) | 72t Distribution | 72t Calculators | SEPP Plans . A couple things, you are stuck with your choice until age 59.5 or you pay penalty and only minimum distribution can increase. If you don't mind the penalty you can take monthly payments of whatever amount you want and change them each December. Of course, you could transfer your balance into an IRA and do the same things.

Let me know if I can help further.

 

[Kaufmanrider]

I have been playing with the 72T calculator, and reading on how to re-calculate the minimum distribution each year to hopefully increase the monthly amount due to a shortening life expectancy and growing account balance.

However, reading the TSP publications and using their calculator it appears the monthly distribution based upon IRS life expectancy is calculated in accordance with 72T?

I read a post where someone stated since they did their TSP monthly on the life expectancy (let TPS figure the amount) when they received their 1099-R code 2 was checked, basically stating no penalty was incurred on the distribution. No additional IRS forms where required to be completed.

Is this correct? Should would make my distributions easier when I go. (I'll be under 55)

 

[clester]

I have been playing with the 72T calculator, and reading on how to re-calculate the minimum distribution each year to hopefully increase the monthly amount due to a shortening life expectancy and growing account balance.

However, reading the TSP publications and using their calculator it appears the monthly distribution based upon IRS life expectancy is calculated in accordance with 72T?

I read a post where someone stated since they did their TSP monthly on the life expectancy (let TPS figure the amount) when they received their 1099-R code 2 was checked, basically stating no penalty was incurred on the distribution. No additional IRS forms where required to be completed.

Is this correct? Should would make my distributions easier when I go. (I'll be under 55)

Tsp uses the minimum distribution method which is one of the 72t options and they will code it as a 2. With the low rates we have now is it close to the other method payouts like amortization? If you want amortization it is very easy to claim the exemption. Turbo tax will ask you if you are using a SEPP and fill out the form for you. Easy.

Letting TSP do it is easier and minimum distribution should give you yearly increases. TSP will do those calcs for you. If you choose amortization it's a one time calculation and you can't change it untill age 59.5. You do the calculations and request that monthly payment from TSP. I used the calculators on 72t.Net |IRC Section 72(t) | 72t Distribution | 72t Calculators | SEPP Plans

 

[Kaufmanrider]

Thanks Clester. I prefer to get yearly increases, so the life expectancy will work. I'll get a FERS COLA annually (retiring as a LEO), a TSP "COLA" will be a nice thing to look forward to each year. I just need to make more in my TSP than I draw down annually.

Tsp uses the minimum distribution method which is one of the 72t options and they will code it as a 2. With the low rates we have now is it close to the other method payouts like amortization? If you want amortization it is very easy to claim the exemption. Turbo tax will ask you if you are using a SEPP and fill out the form for you. Easy.

Letting TSP do it is easier and minimum distribution should give you yearly increases. TSP will do those calcs for you. If you choose amortization it's a one time calculation and you can't change it untill age 59.5. You do the calculations and request that monthly payment from TSP. I used the calculators on 72t.Net |IRC Section 72(t) | 72t Distribution | 72t Calculators | SEPP Plans

 

[clester]

Thanks Clester. I prefer to get yearly increases, so the life expectancy will work. I'll get a FERS COLA annually (retiring as a LEO), a TSP "COLA" will be a nice thing to look forward to each year. I just need to make more in my TSP than I draw down annually.

Sounds like a good plan. We haven't had much of a fers cola lately. Last year was 2.4% I think. Still, every little bit helps.

 

[Kaufmanrider]

Sounds like a good plan. We haven't had much of a fers cola lately. Last year was 2.4% I think. Still, every little bit helps.

2.4% is better than the 0% we will be getting for the future while working.

And the good thing about the LEO/FF/ATC retirement, we can work another job and have no cap on our pay in regards to the Special SS Supplement offset until we reach MRA.

 

[nasa1974]

Re: 1.7% for good time...but don't forget....NO COLA...

I am just starting to do my research on the TSP since I am going to retire May 3rd. A quick question. If you start a monthly check from TSP can you still leave your money in your account and play with it or does it get locked in the G fund? I will turn 60 in May so there is no penalty problem.

 

[Birchtree]

Re: 1.7% for good time...but don't forget....NO COLA...

They will liquidate shares across the funds you own to pay your monthly check. You can now really start to make some serious money by staying with TSP.

 

[nasa1974]

Re: 1.7% for good time...but don't forget....NO COLA...

They will liquidate shares across the funds you own to pay your monthly check. You can now really start to make some serious money by staying with TSP.

So if I get $500 a month from my TSP account all I have to do is make at least $500 a month in the market and I break even. Make $1,000 a month and I'm ahead of the game. Is that right?

 

[Birchtree]

Re: 1.7% for good time...but don't forget....NO COLA...

The cost of doing trades is zip - you can't beat that if you're pushing around multithousand share positions. Why take money out anyway - let it roll until you are 70. You may have the potential to double your current balance in the next few years - have disciplined fun now that you will have time to invest. There is really only one place to make any money and you are in it.

 

[SkyPilot]

Re: Leaving funds in TSP, retire like clester....??

My plan is to defer SS until 70 and deplete TSP between retirement and 70. The variable is when I will retire, thus the number of years to divide my balance by. At 70 I should be receiving around 75k combined from SS, and FERS Pension, with some cash and the Mrs. SS and small pension, we should be around 100k by then. Minus taxes. I can live on that. Comfortably. With some p/t work during my 60's, I will probably need to do some tax planning even...

 

[SkyPilot]

Re: 1.7% for good time...but don't forget....NO COLA...

So if I get $500 a month from my TSP account all I have to do is make at least $500 a month in the market and I break even. Make $1,000 a month and I'm ahead of the game. Is that right?

Or, if you have a balance of 300k, grow at 4%, you can take $12,000 ($1000 per month) per year and not touch the principle. This scenario has been helpful to many of my coworkers to wrap their head around the question of "how long will my money last?".

A good calc. for this exercise http://www.thefsb.com/calcDetail.aspx?tid=244&cid=370

 

[nasa1974]

I just finished reading the TSP Retirement Booklet. Not sure which way I want to go, roll over to an IRA or keep it in TSP and take a monthly withdrawl. If I take a monthly withdrawl I still have the opportunity to use an IFT to move shares around if I want to. Ideally it would be nice to leave it there for a few more years but I am going to need a new vehicle this year.

 

[SkyPilot]

Hey Nasa... another revelation from my CPA... the amount I contributed to my TSP account (pre-tax) kept me out of the 25% bracket. So, now I am aware that not only do I benefit from delayed tax, but it served me well this year as a tax reduction tool as well (beyond just the normal concept of reduced taxable income). While this may not be an important issue for some, the 401k advantage really worked well in my case. Had I been in a ROTH, I would have payed way more tax this year due to the upper bracket.

 

[nasa1974]

Hey Nasa... another revelation from my CPA... the amount I contributed to my TSP account (pre-tax) kept me out of the 25% bracket. So, now I am aware that not only do I benefit from delayed tax, but it served me well this year as a tax reduction tool as well (beyond just the normal concept of reduced taxable income). While this may not be an important issue for some, the 401k advantage really worked well in my case. Had I been in a ROTH, I would have payed way more tax this year due to the upper bracket.

Doing the 2012 taxes will be interesting.

 

[PessOptimist]

Re: 1.7% for good time...but don't forget....NO COLA...

Or, if you have a balance of 300k, grow at 4%, you can take $12,000 ($1000 per month) per year and not touch the principle. This scenario has been helpful to many of my coworkers to wrap their head around the question of "how long will my money last?".

A good calc. for this exercise Investment Savings and Distributions Calculator - First State Bank - Macomb County, Michigan

Thank you for that. It does help me "wrap my head around the question". Even if you make 0% on that balance it would last 25 years at that withdrawal rate. In the G fund it will make at least 1.65% for now and maybe at least 1% in the future. Maybe with FERS annuity (I know, that's what OPM still calls it no matter what it really is) and social security, in six years I can retire with about 60% of what I make now. Woohoo!

 

[nasa1974]

I wish I had 300K in my account. Anyway I plan to talk to my wifes financial advisor to see which is going to be the best way to go. I know he will way heavy on his advantages but it is something I can compare too.