Life Expect. payments for Very Early 12d retirees???

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Texarkandy

Member
I know there have been several threads dealing with this issue - and I have been following them closely. I'd like to address some issues particular to very early retiring FERS 12d (LEO/FF/ATC) retirees & TSP penalty free withdrawal options.

I very recently retired as a 12d retiree at 49 years old. (awaiting my first interim annuity check - haven't heard from TSP yet) I am considering at some point before age 59.5 taking penalty free "life expectancy" payments from my TSP - which would help us out in a few years when my daughter starts college.

I have read up a little bit on the TSP life-expectancy option & know just a little about 72t plans - it seems to be the same thing as a private sector 72t, just less hassle for me personally.

I had a few questions if anyone knows the answers to any of them.


  • Do I have to exercise my "life expectancy" payments choice now immediately upon retirement - or can I just let my TSP ride & wait till age 53, 55, whatever to tell them I want to set up life-expectancy payments?

  • Considering I am only 49 y/o but eligible for immediate retirement annuity - can I take a one-time, penalty-free, partial lump sum out of my TSP now & let the rest ride for a few years - and then in a few years opt for life-expectancy payments?

  • I know that under a 72t plan when using the life expectancy method one has to demonstrate annually they assumed a reasonable interest rate to satisfy IRS 72t rules. Under the TSP life-expectancy payment method, who will be deciding the reasonable interest rate? Me or the TSP? If it's the TSP, what if at the end of the year the IRS is not happy with what TSP decided was a reasonable interest rate. (I'm guessing if push ever came to shove the IRS will care only about the IRS interpretation of the IRS rules & not really give a whit for what TSP says the TSP or IRS rules are/aren't)

  • What kind of Form 1099-R will TSP send me at the end of the year if I am receiving life-expectancy payments? will it be coded any particular way to indicate to IRS these are in fact eligible for the penalty exemption?

  • Will I have to submit any other forms with my tax return indicating to IRS that these are 72t payments & at what interest rate I chose as reasonable & how that years payments met the criteria for a penalty-free withdrawal.

  • If I choose to receive the life-expectancy payments from TSP, can I change that option after age 59.5? (presuming I have been receiving them for at least five years already at that time of course)
I know a few on this board are dealing with some of the same issues. Personally, I'd rather not roll my monies out to a private sector IRA & deal with the 72t hassles myself if TSP will do it for me.
(I note the TSP website literature says little to nothing about IRS rule 72t for early retirees & I'm guessing if I called them I'd have a hard time getting somebody who knows what I'm talking about)
 
Tex,
Did you ever get any answers? I have researched this topic pretty well. Let me know if I can help.

How has the fers process gone so far for you? annuity payments, supplement, leave payout etc.
 
Most of your answers can be found here.
http://www.tsp.gov/features/chapter13.html#sub2

Do I have to exercise my "life expectancy" payments choice now immediately upon retirement - or can I just let my TSP ride & wait till age 53, 55, whatever to tell them I want to set up life-expectancy payments?
You can wait.

Considering I am only 49 y/o but eligible for immediate retirement annuity - can I take a one-time, penalty-free, partial lump sum out of my TSP now & let the rest ride for a few years - and then in a few years opt for life-expectancy payments?
You must pay a penalty unless you take an annuity or equal payments based on life time expectancy.

I know that under a 72t plan when using the life expectancy method one has to demonstrate annually they assumed a reasonable interest rate to satisfy IRS 72t rules. Under the TSP life-expectancy payment method, who will be deciding the reasonable interest rate? Me or the TSP? If it's the TSP, what if at the end of the year the IRS is not happy with what TSP decided was a reasonable interest rate. (I'm guessing if push ever came to shove the IRS will care only about the IRS interpretation of the IRS rules & not really give a whit for what TSP says the TSP or IRS rules are/aren't)
It appears that TSP uses the IRS computations.

What kind of Form 1099-R will TSP send me at the end of the year if I am receiving life-expectancy payments? will it be coded any particular way to indicate to IRS these are in fact eligible for the penalty exemption?
Don't know, but pretty sure that they are consistent with IRS as it is based on IRS calcs.

Will I have to submit any other forms with my tax return indicating to IRS that these are 72t payments & at what interest rate I chose as reasonable & how that years payments met the criteria for a penalty-free withdrawal.
Actually, I don't believe it is actually a 72t (though it mimics 72t). I am pretty sure the rates are dictated for you, but I may be wrong.

If I choose to receive the life-expectancy payments from TSP, can I change that option after age 59.5? (presuming I have been receiving them for at least five years already at that time of course)
Yes, you can.

Of course, this is based on my research and understanding having studied this a bit over the last few years. Good luck. Welcome any corrections or additions to what I have posted here.
 
TSP only gives you the option for minimum distribution for payments based on life expectancy and it will be coded correctly. You can use the other 2 methods but you have to do the calculations yourself, request monthly payments for that amount and file another IRS form that says this is based on on a 72t method. I"m not sure of the form # but it is in another forum.
 
clester said:
Tex,
Did you ever get any answers? I have researched this topic pretty well. Let me know if I can help.

How has the fers process gone so far for you? annuity payments, supplement, leave payout etc.
Click to expand...

No I didn't get any answers other than what I found out myself - pretty much what skypilot said.

I'm not 100% comfortable taking TSP's word alone for it - & have been looking closer at the actual IRS regs - here's a couple that lead me to believe IRS is OK with it:

http://www.irs.gov/publications/p575/ar02.html#en_US_publink1000226952
http://www.irs.gov/publications/p721/ar02.html#en_US_publink100028945

I still haven't met anybody else (online or off) who actually began receiving life-expectancy payments from TSP prior to age 55.

I've been getting about 75% of my estimate from OPM starting in Nov (I had to actually call OPM to get my payments started) - I have no idea when it will be finalized with an explanation of benefits, soon I hope.

Annual Leave payout came quickly, right after my last paycheck, and was correct to the penny.

I have TSP 70 printed out & may send it in soon for the life-expectancy payments - still mulling it over - I really don't want to fool with rolling over & having to set up my own 72t plan if TSP will do it for me.

We thought about waiting to take monies from TSP & letting it grow - but our rationale is that we would rather have the extra $ now to spend & enjoy beginning in our 50's & 60's than later in our 70's & 80's. (we have one child to get through college in a few years).

100% G right now (since 04/07) & I fear a double dip. I'll see about re-allocating next summer sometime if the recovery holds up - but I'm skeptical. (I'll still leave at least 60% in G fund - I'm very risk averse - more so since retiring)
 
IRS Pub 721 specifically says with regard to TSP:

"Tax on early distributions. Any money paid to you from your TSP account before you reach age 59½ may be subject to an additional 10% tax on early distributions. However, this additional tax does not apply in certain situations, including any of the following.
  • You receive the distribution and separate from government service during or after the calendar year in which you reach age 55.
  • You choose to receive your account balance in monthly payments based on your life expectancy.
  • You are totally and permanently disabled."



That's good enough for me. I'll print it out & send it in with my 1040 if I have to!
 
Texarkandy said:
IRS Pub 721 specifically says with regard to TSP:

"Tax on early distributions. Any money paid to you from your TSP account before you reach age 59½ may be subject to an additional 10% tax on early distributions. However, this additional tax does not apply in certain situations, including any of the following.
  • You receive the distribution and separate from government service during or after the calendar year in which you reach age 55.
  • You choose to receive your account balance in monthly payments based on your life expectancy.
  • You are totally and permanently disabled."



That's good enough for me. I'll print it out & send it in with my 1040 if I have to!
Click to expand...

Here is the IRS form that needs to be filled out if you are given the wrong code on your 1099.
 
I had a heated discussion on this topic in this thread. "Leaving funds in TSP and taking 72t withdrawals" in the retirement forum. I don't know how to link to it for you.It has lots of good stuff in it. Maybe someone can link to it for me?
 
Well I finally filled out a TSP-70 & mailed it in around the first of Feb requesting life-expectancy payments. Surprise, surprise - the first payment was in my account on Feb 10th.

(meanwhile, I'm now on my 4th (soon to be 5th) FERS "estimated" annuity payment & still has not been finalized - sheesh!)
 
You would think in this day of tecnology, it could it would instant! Especially if you have submitted all your necessary retirement forms to your human resources, for us it is nssc! HR has all forms, clicks one button........done! OPM and TSP would be instantly notified and checks on their way!
 
It's not like I have a very complicated retirement computation either -

25.5 years all under FERS 12d and all with the same agency + 4 years bought-back military time.
 
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