I'm sorry this question is probably so redundant. Please send me to the correct thread, I'm sure it's been posted. I'm MRA(56) and 30+ years and work for the VA. In a nutshell...divorced last year so it's just me. My TSP remained untouched. I would like to retireat aprox age 57. In a perfect world, I would like to have a modest lump sum withdrawal to supplement my pension and SRS. I seem to get no straight answer about options available to avoid the 10% early withdrawal intil age 59 1/2. CFA is pitching IRA conversion...I've heard it's better to stay TSP. I've read to much from different sources which are inconsistent. Help!
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New to TSPTalk and a bit lost. MRA and 30+ years. Help
- Thread starter SteveJ
- Start date
weatherweenie
Well-known member
There is an option that allows an early retiree to withdraw from a retirement account, I believe, without penalty. It's called 72t. You can read about it here: 72t Distributions for Early Retirement - Required Minimum Distribution
DreamboatAnnie
Well-known member
Hi Steve J, I do not believe you are subject to the 10% tax penalty but best to read IRS Pub 721. It is a guide to CSRS but it also discusses FERS and TSP.
Page 13 and 14 talk about TSP and early penalty and it seems to indicate penalty would not apply to when you reire at 55 or older but you may need to read the whole thing to make sure it fits your particular situation. It also indicates pub 575 is applicable BUT I would follow pub 721 if you see conflicts... 721 should rule for Fed retirement and TSP.
Also, its important to note that this Fall lots of additional withdrawal options will become available due to new law put in place that will be implemented late this year. It will give persons that are already retired new options as well.
https://www.irs.gov/pub/irs-pdf/p721.pdf
https://www.irs.gov/pub/irs-pdf/p575.pdf
You also Mentioned "CFA" and I'm not sure what that is but I would hold off on any IRA conversion until your sure about that. Seems lots of companies try to get Fed employees to move money over to them but I understand the fees can be much higher and hidden at times. Others on this site can provide better info on that. There are also several threads on that.
Page 13 and 14 talk about TSP and early penalty and it seems to indicate penalty would not apply to when you reire at 55 or older but you may need to read the whole thing to make sure it fits your particular situation. It also indicates pub 575 is applicable BUT I would follow pub 721 if you see conflicts... 721 should rule for Fed retirement and TSP.
Also, its important to note that this Fall lots of additional withdrawal options will become available due to new law put in place that will be implemented late this year. It will give persons that are already retired new options as well.
https://www.irs.gov/pub/irs-pdf/p721.pdf
https://www.irs.gov/pub/irs-pdf/p575.pdf
You also Mentioned "CFA" and I'm not sure what that is but I would hold off on any IRA conversion until your sure about that. Seems lots of companies try to get Fed employees to move money over to them but I understand the fees can be much higher and hidden at times. Others on this site can provide better info on that. There are also several threads on that.
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DreamboatAnnie
Well-known member
One more thing, I do not see you as an "early retiree"... You are 55 with 30 years of Fed service and Looks lik pub 721 is exempting us from the "early" penalty.
DreamboatAnnie
Well-known member
Just couldn't let it go. The exception to the early penalty is specified on page 14 of pub 721, but also mentioned at pg 35 of pub 575.
Quote from pub 721, page 14:
"Tax on early distributions. Any money paid to you from your TSP account before you reach age 591/2 may be subject to an additional 10% tax on early distributions. However, this additional tax doesn't 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."
Quote from pub 575, page 35:
"Additional exceptions for qualified retirement plans. The tax doesn’t apply to distributions that are
From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees)..."
Pub 575, Best to read from pg 33-36. I do not believe TSP is an IRA, but if anyone knows otherwise, please advise. But 721 is soooo clear really should not need any other corroboration.
Best wishes!!!
Quote from pub 721, page 14:
"Tax on early distributions. Any money paid to you from your TSP account before you reach age 591/2 may be subject to an additional 10% tax on early distributions. However, this additional tax doesn't 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."
Quote from pub 575, page 35:
"Additional exceptions for qualified retirement plans. The tax doesn’t apply to distributions that are
From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees)..."
Pub 575, Best to read from pg 33-36. I do not believe TSP is an IRA, but if anyone knows otherwise, please advise. But 721 is soooo clear really should not need any other corroboration.
Best wishes!!!
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Hello Steve, I like staying with TSP due to low fees. One option allows you to elect a lump sum withdrawal but make partial withdrawals monthly. You choose how much you withdraw monthly. i.e. once a year you can change the amount. for example a 4% annual withdrawal might be $ 1000 per month. Should make your TSP principal balance last a long time if you invest conservatively. i.e. should easily be able to earn 4% annually. Amounts withdrawn are taxable. Also, helps reducing the Required Minimum Distribution due starting at age 70 1/2. i.e. if you wait until you are 70 1/2 to start withdrawing your TSP it could put you in a higher tax bracket later. Just another factor to consider. Best of luck to you in your retirement planning!
weatherweenie
Well-known member
That is really interesting! I was always under the assumption that if we were considered an early retiree, even though it is in the rules to retire at MRA + 30, so we were subject to the 10% penalty if you didn't do something like a 72t. These IRS publications indicate otherwise. Thanks for sharing.
Stoplight
Active member
Hi, Steve3 !
I don't mean to get personal, but your comment "...divorced last year..." raised a red flag, in my eyes
Unless you have that all figured out, in writing, between you and your Ex, and approved by the Court, the Ex has a claim against your TSP, too...regardless of what you decide to do with it !!! Complicated subject, and the Feds WILL ask !
Be sure to take that into account in ALL your retirement planning....just saying...
Best of luck !
Stoplight...
I don't mean to get personal, but your comment "...divorced last year..." raised a red flag, in my eyes
Unless you have that all figured out, in writing, between you and your Ex, and approved by the Court, the Ex has a claim against your TSP, too...regardless of what you decide to do with it !!! Complicated subject, and the Feds WILL ask !
Be sure to take that into account in ALL your retirement planning....just saying...Best of luck !
Stoplight...
Thanks for the reply Stoplight, I appreciate any and all replies. That has been addressed and approved by the court. My attorney was very aware to cover those bases. He is a friend of both of ours and she had great understanding she was relinquishing all rights to pension and TSP...in writing. She actually has the same pension and TSP not that it matters. I'm very fortunate we are financially equal and had very strong feelings about not touching my retirement. We just split the equity in our home equally and we both left debt free and happy.
Stoplight
Active member
SWEET !!! (in a sense...never "sweet", when a marriage falls apart...:worried: )
I felt kinda bad even bringing it up in your thread, but I've had friends who never thought about that angle, and ended up retiring with WAY less than they had planned...
Best of luck to you AND your Ex ! :smile:
Stoplight...
Actually Stoplight, it is SWEET! We started as friends and ended as friends.
OK, I've read Publication 721 and 575. Once again, my head is spinning. They clearly indicate withdrawal at 55 or older from a qualified retirement plan (not an IRA) is exempt from the 10% penalty. I felt in spots the publications were unclear. A tax representative, when asked about my situation, replied by talking about the 72t rule. A financial Planner talked about the same 72t as well as rolling the TSP creatively into IRA accounts in a way to create cash flow prior to 59 1/2. I just don't understand why it is so hard to get a clear cut answer on this. I'm sure my place in life is not unique. My next move is to seek out a tax expert with knowledge of this subject and what the IRS Publications 721 and 575 mean to me. I could modestly make it on my pension and SRS until 59 1/2 but I don't want to.
OK, I've read Publication 721 and 575. Once again, my head is spinning. They clearly indicate withdrawal at 55 or older from a qualified retirement plan (not an IRA) is exempt from the 10% penalty. I felt in spots the publications were unclear. A tax representative, when asked about my situation, replied by talking about the 72t rule. A financial Planner talked about the same 72t as well as rolling the TSP creatively into IRA accounts in a way to create cash flow prior to 59 1/2. I just don't understand why it is so hard to get a clear cut answer on this. I'm sure my place in life is not unique. My next move is to seek out a tax expert with knowledge of this subject and what the IRS Publications 721 and 575 mean to me. I could modestly make it on my pension and SRS until 59 1/2 but I don't want to.
DreamboatAnnie
Well-known member
This ex Fed named Dan Jamison has been putting out a document he calls the FERSGUIDE. He used to give it out free, but starting in 2015 he started charging $15 when he retired. It's well worth buying! I have an old copy but can't find it right now so here is link I found online. I will probably buy his 2020 publication because of the law changes on withdrawal options.
Here is link to 2018 version....partial teaser copy.
https://www.fersguide.com/wp-content/uploads/2016/11/REGULAR-v2018-FERSGUIDE-TEASER.pdf
2014 version...full free version for special employees...read pp. 26 to 28. Page 26 states no penalty when withdrawing from TSP account and specifies you do pay penalty if you roll over your TSP to an IRA and then withdraw. Page 28 mentions 72(t) as option for true early withdrawal occurring before age 55
https://files.ctctcdn.com/ad61f4e9201/0fa2e5ae-8653-458f-b4dc-93daf544efa6.pdf
This is link to his site to buy the latest copy.
https://fersguide.com/
Best wishes!!!
Here is link to 2018 version....partial teaser copy.
https://www.fersguide.com/wp-content/uploads/2016/11/REGULAR-v2018-FERSGUIDE-TEASER.pdf
2014 version...full free version for special employees...read pp. 26 to 28. Page 26 states no penalty when withdrawing from TSP account and specifies you do pay penalty if you roll over your TSP to an IRA and then withdraw. Page 28 mentions 72(t) as option for true early withdrawal occurring before age 55
https://files.ctctcdn.com/ad61f4e9201/0fa2e5ae-8653-458f-b4dc-93daf544efa6.pdf
This is link to his site to buy the latest copy.
https://fersguide.com/
Best wishes!!!
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evilanne
Well-known member
Steve J
The TSP Guide that DBA referenced is a good resource. With the subscription you can call or email the author with questions.
It isn't really that difficult. If you are over 55 and under 59.5, TSP is the better option for withdrawals for simplicity, flexibility and avoiding any penalties. Under IRA you can also make withdrawals but to avoid penalty, you have to meet one of the exceptions--primarily 72t or Substantially Equal Periodic Payment (SEPP). SEPP is the same as Life Expectancy Payments prior to age 70.5 TSP uses this in second column when you use https://www.tsp.gov/PlanningTools/Calculators/retirementCalculator.html. Withdrawing from TSP will simplify any tax implications as your 1099R will be coded correctly, there is no 10% penalty and you can change the amount you need each year.
Note: All traditional TSP $$$ are taxed as ordinary income. Since you are getting a pension, I would suggest you use actual filing status for withholding plus make additional withholding or estimated tax payments if necessary considering your total estimated income based on your Pension, TSP Withdrawal and any other income.
If you transfer part of your TSP to an IRA the rules in IRS Publication 590-B https://www.irs.gov/pub/irs-pdf/p590b.pdf apply which would force you to use 72t rules or some other exception in order to access funds without penalty. I assume the financial planner talking about creatively setting up different IRAs would use the same life expectancy calculations to determine how much you would need to put in the IRA you would be withdrawing from based on your needs. The big issue with this is that you will be locked in to this method for 5 years (see Recapture tax for changes in distribution method under equal payment exception on page 23 of 590-B) based on your age.
If you want to transfer part of your TSP to an IRA for any reason, you need to do the partial withdrawal prior to making the full withdrawal (monthly payments can be any amount you choose >$25/month) based on current rules. I would recommend only transferring money you will not need to withdraw before age 59.5.
One clarification: Is all of your TSP traditional or do you have Roth or any after-tax contributions in your account? I am assuming all is traditional in my response.
The TSP Guide that DBA referenced is a good resource. With the subscription you can call or email the author with questions.
It isn't really that difficult. If you are over 55 and under 59.5, TSP is the better option for withdrawals for simplicity, flexibility and avoiding any penalties. Under IRA you can also make withdrawals but to avoid penalty, you have to meet one of the exceptions--primarily 72t or Substantially Equal Periodic Payment (SEPP). SEPP is the same as Life Expectancy Payments prior to age 70.5 TSP uses this in second column when you use https://www.tsp.gov/PlanningTools/Calculators/retirementCalculator.html. Withdrawing from TSP will simplify any tax implications as your 1099R will be coded correctly, there is no 10% penalty and you can change the amount you need each year.
Note: All traditional TSP $$$ are taxed as ordinary income. Since you are getting a pension, I would suggest you use actual filing status for withholding plus make additional withholding or estimated tax payments if necessary considering your total estimated income based on your Pension, TSP Withdrawal and any other income.
If you transfer part of your TSP to an IRA the rules in IRS Publication 590-B https://www.irs.gov/pub/irs-pdf/p590b.pdf apply which would force you to use 72t rules or some other exception in order to access funds without penalty. I assume the financial planner talking about creatively setting up different IRAs would use the same life expectancy calculations to determine how much you would need to put in the IRA you would be withdrawing from based on your needs. The big issue with this is that you will be locked in to this method for 5 years (see Recapture tax for changes in distribution method under equal payment exception on page 23 of 590-B) based on your age.
If you want to transfer part of your TSP to an IRA for any reason, you need to do the partial withdrawal prior to making the full withdrawal (monthly payments can be any amount you choose >$25/month) based on current rules. I would recommend only transferring money you will not need to withdraw before age 59.5.
One clarification: Is all of your TSP traditional or do you have Roth or any after-tax contributions in your account? I am assuming all is traditional in my response.
I retired at 55 1/2 and took the life expectancy withdrawal offered by TSP which was exempt from the 10% penalty. Since I didn't actually need the full amount each month I deposited a portion of it into a traditional IRA for tax purposes, the monthly amount was adjusted based on December closing balances each year. I was then able to do a complete rollover into my IRA when I reached 59 1/2 because I wanted more flexibility than TSP was offering. Worked for me.
DreamboatAnnie
Well-known member
Great Info! Thanks to all of you for comments and tips. I'm getting closer to retirement and I appreciate the info! :smile:
Just kicking the horse one more time... With the great comments and references posted here, it really does seem simple. All my eggs are in one basket, traditional TSP. I will be 56 in a couple weeks (my MRA). I have 30+ years credible years of service. End of the year, I can retire, take a one time lump sum TSP withdrawal then start monthly TSP withdrawals without being subject to a 10% early withdrawal penalty as long as the money remains in TSP. Once again, it seems simple and consistent with everything I've read. PLEASE correct me if I'm wrong. So my retirement will read: 30+ year pension, TSP, and I qualify for the FERS SRS until I reach my early SS age 62...also know it's all taxable income. If all is correct, looks very good to me and already have plans for the next stage of life...no boredom here. I just still don't understand why, after asking two different so called tax experts, they didn't have a clue. As we all know here, I'm not the only FERS employee/retiree with a TSP in the world.
Tsunami
Well-known member
Steve,
I've seen this many times, that tax "experts" by and large are not familiar at all with the special rules that apply to Federal employees. So that's why you get different answers. You'd think there would be more tax pros that would know the answers since there are over 5 million people in the TSP, but that's not the case.
I'm in a similar situation as you, just a couple years ahead of you. I'm FERS (with a CSRS component, but for tax purposes I'm FERS). I retired at 58-1/2 on 12/31/18, and just this month started collecting monthly withdrawals from my TSP. Whether it's a lump sum or monthly payments doesn't matter, all money received from your traditional TSP will be taxed as ordinary income. In my case I'm taking out what amounts to about 4%/year, and I'm putting about half of the withdrawals into savings to save up for future needs like major house maintenance needs, new appliances, and the next new car.
I've decided to stay with the TSP, in large part due to the greatly expanded rules that the TSP will be rolling out this September. That's just 4 months away now. Starting in September all retirees will be able to change the amount of their monthly withdrawals as often as every month, so in effect you can take out a lump sum whenever you'd like, as often as you like. That flexibility plus the low fees plus not being tempted by the limitless number of ways to totally screw up and lose your savings (e.g., trying to catch the next high flying pot stock) if you rolled it over to an IRA is enough to keep me in the TSP.
I've seen this many times, that tax "experts" by and large are not familiar at all with the special rules that apply to Federal employees. So that's why you get different answers. You'd think there would be more tax pros that would know the answers since there are over 5 million people in the TSP, but that's not the case.
I'm in a similar situation as you, just a couple years ahead of you. I'm FERS (with a CSRS component, but for tax purposes I'm FERS). I retired at 58-1/2 on 12/31/18, and just this month started collecting monthly withdrawals from my TSP. Whether it's a lump sum or monthly payments doesn't matter, all money received from your traditional TSP will be taxed as ordinary income. In my case I'm taking out what amounts to about 4%/year, and I'm putting about half of the withdrawals into savings to save up for future needs like major house maintenance needs, new appliances, and the next new car.
I've decided to stay with the TSP, in large part due to the greatly expanded rules that the TSP will be rolling out this September. That's just 4 months away now. Starting in September all retirees will be able to change the amount of their monthly withdrawals as often as every month, so in effect you can take out a lump sum whenever you'd like, as often as you like. That flexibility plus the low fees plus not being tempted by the limitless number of ways to totally screw up and lose your savings (e.g., trying to catch the next high flying pot stock) if you rolled it over to an IRA is enough to keep me in the TSP.
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