TSP noobie question

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ogdenbonnie

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I'm no longer employed by the department of the Air Force and still have $43,000 in my TSP account. I'm currently not working and am planning on not doing so for a while. My husband and I are going through a divorce and I'm receiving $500 per month alimony now and once he's divorced.

I'm interested in liquidating my TSP and have a couple questions:
1. Do they take out the 10% penalty and 20% tax out right away?
2. When I file taxes next year and my income would only be the $500 per month alimony, would I get a lot of the 20% taxes back since I won't be making that much money.

thanks for any advice you can offer!
 
Hi ogdenbonnie. Thanks for joining us.

I'm not 100% sure about #1, they will probably withhold 20%, but then it will be taxed as ordinary income so you could get some of that back.
 
ogdenbonnie said:
I'm no longer employed by the department of the Air Force and still have $43,000 in my TSP account. I'm currently not working and am planning on not doing so for a while. My husband and I are going through a divorce and I'm receiving $500 per month alimony now and once he's divorced.

thanks for any advice you can offer!
Click to expand...

Check these links at the TSP website:
https://www.tsp.gov/PDF/formspubs/tsp-775.pdf
https://www.tsp.gov/planparticipation/withdrawals/taxesOnWithdrawal.shtml
 
ogdenbonnie said:
I'm no longer employed by the department of the Air Force and still have $43,000 in my TSP account. I'm currently not working and am planning on not doing so for a while. My husband and I are going through a divorce and I'm receiving $500 per month alimony now and once he's divorced.

I'm interested in liquidating my TSP and have a couple questions:
1. Do they take out the 10% penalty and 20% tax out right away?
2. When I file taxes next year and my income would only be the $500 per month alimony, would I get a lot of the 20% taxes back since I won't be making that much money.

thanks for any advice you can offer!
Click to expand...

ogdenbonnie,

  1. They take the 30% out before you see it. They want their money. And, don't forget, your state will want theirs as well - but that will be delayed...
  2. The withdraw becomes taxable income. Thus, if your only other source of income is the $500 bucks a month then your 2015 taxable income will be ($500 * 12) + $43,000 = $49,000. Best guess is that you will lose $4,300 to the 10% fine and another $5,500 to Federal income taxes and whatever your state wants from you. You will get a refund of about $3,000 next year if you have no other income source.

Without further information, are you thinking you have to take the money out of your 401(k) because you are changing jobs or because your marital situation has changed? People change jobs all the time and they transfer the balance to the new jobs 401(k) account set up for you. Or, they transfer the old 401(k) assets to an IRA. Have the employers set up the transfer - you do not want the check or you will get stuck with the penalties and withholdings you mentioned above. To be clear, your TSP is a 401(k). No difference. It is not part of a pension. You can have your TSP balance moved to an IRA or your new employer's 401(k) just like everyone else - it is your retirement asset. But, it is a retirement asset and it is really bad juju to yank the money out as you can see from the above.
 
I just left the post office in june, 7 months ago. I took about 100K and left just under 50K. This was to cover all the fees and penalties. Yes, i was taxed 30%. Originally i thought 20%, but was made aware it was in fact 30%. I took enough to cover living expenses for the next 3 yrs(if i manage properly) and anything that was pressing. I would close your TSP. IMO, it is a vehicle that can potentially offer one 20-30% interest on remaining capital.
For me, when i file taxes this year ( and probably the next few ) i will have opened an IRA for anywhere from $1000 -2 or 3 thousand (lowers taxable income), and then transfer that IRA into my TSP. I believe i can recoup some of the original 30% i incurred in penalties. Yes? No?(F*** penalties, that is my money, i worked hard for that)
 
Ogdenbonnie, I want to state that Boghie's points are excellent and add that TSP has qualities that are hard to beat. If you can (I am sure that it is v. complex) consider not closing it out. I transferred/closed 401k accounts in Fidelity and TIAA-Cref as I really value the overall structure of TSP--(highest value, transparent, and comparatively minimal restrictions on transfer b/w accnts). Best wishes.
 
ogdenbonnie,

It is your money and you need to decide what benefits you. The rest of us can suggest, recommend and give our opinion. Yes you will pay penalties and taxes if you take the money out of your TSP. My suggestion is if you do not need the money then leave it in your account and over the next few years try to increase your current balance. If you just left it in the"G" fund you will earn about 4% per year. If you want to get a little aggressive you might be able to get that percentage between 10% and 20%. Then again you might loose 10%. You could transfer into the L-inc or the L2020 and just let it ride. This is a great place to learn and have questions answered. Good luck.
 
jason011235813 said:
I just left the post office in june, 7 months ago. I took about 100K and left just under 50K. This was to cover all the fees and penalties. Yes, i was taxed 30%. Originally i thought 20%, but was made aware it was in fact 30%. I took enough to cover living expenses for the next 3 yrs(if i manage properly) and anything that was pressing. I would close your TSP. IMO, it is a vehicle that can potentially offer one 20-30% interest on remaining capital.
For me, when i file taxes this year ( and probably the next few ) i will have opened an IRA for anywhere from $1000 -2 or 3 thousand (lowers taxable income), and then transfer that IRA into my TSP. I believe i can recoup some of the original 30% i incurred in penalties. Yes? No?(F*** penalties, that is my money, i worked hard for that)
Click to expand...

Jason,

I think you are in trouble with your idea.
  1. If you got a check for the hundred clams, then that $100K is ordinary income for this year. Welcome new 1%er:worried:
  2. The 20% Federal tax withholding + the 10% fine left you $70K. You will have to grow 43% to break even.
  3. You will have to pay state income taxes on the distribution as well. Yowser, they want theirs too.
  4. You could have moved the entire TSP balance or the $100K to an IRA without tax withholding or penalty
  5. You can only contribute to IRAs (and other retirement accounts) from Earned Income.
  6. TSP, 401(k)s, IRAs, etc are retirement accounts - they are treated different.
If I read your comment accurately I would RUN to a VERY GOOD financial adviser. It is probably too late, but maybe something can be done. Yowser...
 
jason011235813 said:
I just left the post office in june, 7 months ago. I took about 100K and left just under 50K. This was to cover all the fees and penalties. Yes, i was taxed 30%. Originally i thought 20%, but was made aware it was in fact 30%. I took enough to cover living expenses for the next 3 yrs(if i manage properly) and anything that was pressing. I would close your TSP. IMO, it is a vehicle that can potentially offer one 20-30% interest on remaining capital.
For me, when i file taxes this year ( and probably the next few ) i will have opened an IRA for anywhere from $1000 -2 or 3 thousand (lowers taxable income), and then transfer that IRA into my TSP. I believe i can recoup some of the original 30% i incurred in penalties. Yes? No?(F*** penalties, that is my money, i worked hard for that)
Click to expand...

Jason
You will never recoup the 10% penalty for being younger than 59.5 yrs. The only way to recoup the penalty is to put the money in an IRA within 60 days of the check date. That time period has long expired.
 
Ahhhhh, for whatever reason, i was viewing the 100K outside of my regular income because of the fees and penalties incurred. Gotcha.
Hmmm. Ok. Liquidity isthe reason i didn't put into an IRA. And doesnt the tsp give better returns?
 
Thanks everyone. I'm currently not working nor will I be for the foreseeable future. I do need the money and am trying to find the best time to withdraw it!

again, thanks for your help!
 
Maricar19 said:
Hi, NASA, the 4% earnings for G fund had been extinct since 2008...
Click to expand...

I said about!!!! But I guess that wasn't close enough. :rolleyes: The "G" fund started 2014 at $14.2870/share and ended the year at $14.6165/share. That works out to just over 2.3%. Way back when the "G" fund was almost 6%.
 
IMO, there is no doubt that if folks were still earning 5-7% in the G fund there would not be close to the number of members on TSP Talk as there is now.
At 1-5-2.5% folks started searching for ways to get back up to the 5-7%. No more buy and hold safety of the G.

There will always be those who want to do better but a good chunk of the members and visitors on TSP Talk would stop posting/visiting if we returned to those old norms. Some folks are ok with 5-7%.

Except a few that like to argue politics:D
 
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