TSP Rollover

[AllexBancs]

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After people retire do you plan on leaving the money in the TSP or transferring it to a mutual fund co. or discount broker as a rollover IRA? Has anyone already done it? If so, what advice can you give us? Thnx. AB:dude:

 

[Rolo]

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I have over five years to think about it, but I am thinking of rolling it over, mostly to get more investment options with it; I do not care for index funds. Consolidating accounts/funds is also another benefit.

 

[Rod]

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My Wife and I both have TSPs. As of now, We plan on using them to buy some land to build a home.

But, we have discussed keeping it for the long term. Possibly rolling it over intoour Roths. I may be preaching to the choir, but remember that in order to roll it over into a Roth, you have to first roll it over into a Traditional IRA. Then from the Traditional, roll it over into the Roth.

If you desire to do this, simply open a Traditional IRA with the minimum balance, and keep it at that balance, while investing the annualfull monty into the Roth.


God Bless

 

[lbschmoll]

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My broker advises me to rollover TSP funds to a traditional IRA because: on my death, my beneficiaries will need to take a lump sum under TSP, but can space it out under IRA. Thus there are some tax advantages to my benficiaries if I rollover before I die. (I am healthy and do not plan to die soon).

Of course he has a stake in his advice....he gets a commission.

I researched a bit and found that upon my death my wife (also a Federal retiree with a TSP), is allowed to to move my TSP to her account...no taxes.

So, the problem my broker stated apparently applies only to non-spouse beneficiaries.

If I transfer TSP funds to a traditional IRA I will also pay some commission fees. (I am not a fan of no-load IRAs....I don't trust their numbers).

Anyone else researching this?

 

[tsptalk]

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Welcome Ibschmoll. I haven't researched it butI have a hardtime trusting anyone who benefits from their own advice (broker). I've been on both sides.

 

[Spaf]

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Ibschmoll

STOP! you need to be informed. Brokers, maybe yes, maybe no! This is a decision that only you can make! Before you do it, be informed! Research your position; read books, talk with others, please, make a educated researched decision, i.e., try reading "Mutual Fundsfor Dummies", and othergood books, stay tuned to this web site. You have the time, to make a decision. Your $.

Have a good day!

 

[Spaf]

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Allex, Rolo

Everyones situation is different! I plan to invest my properties into a retirement home, where gains can be made. My TSP will be (as of now) transfered to USAA. My other funds will stay with Fidelity (so that I can play with them), in addition I plan to havean emergency fund of not less then 20K. With FERS in effect when I reach age 62 (and SS clicks in) I'm out of the work force. Right now I'm playing the market for some of the "toys" I may need i.e., a new boat!

 

[pyriel]

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Ibschmoll,

I would listen to your broker if I were you. You are right that your wife (who i believe is your designated beneficiary) can roll over your tsp to her tsp. Everything is fine and dandy. Right? For awhile. I say for a while because now you are going into the realm of non-spouse designated beneficiary. If your wife leaves all of her contribution and your roll over money to her account and she dies, her designated beneficiary willonly have five years to keep the account before he/she will be forced to close it out and pay tax on them. In fact, the designated beneficiary has to start withdrawing a year after the anniversary of your wife's death. If after a year has elapsed and the designated beneficiary does not withdraw the minimum amount, he/she will be hit with 50% (that is right) penalty plus he/she must still pay taxes on the whole minimum required amount withdrawal fo rthe year. I'll use you as an example (hope you don't mind). lets say you have $500K and your wife has $500K in TSP. You die first. She is your designated beneficiary. She rolls over your TSP to her TSP. So far so good because she didn't pay any tax on your TSP because of the rollover. A year later she dies (hope this doesn't happen) but leaves your only son as the designated beneficiary. Your son is 25 years old. Your son will only have 5 years to keep the account in TSP before it must be closed out plus your son must start withdrawing every year until the account is closed in 5 years.

Now, lets say he forgot to take out $200K on the first death anniversary of his mother. IRS will penalize him $100K (50%), plus he has to pay tax on the whole $200K (i'd say as high as 36%). Pretty hefty isn't it? But it is not over. All of us are contributing to TSP or IRA because we all know the power of compunding interest being accumulated in our funds. Well you can pretty much throw that out of the window for this account.

What is the better way? Roll it over to IRA (i'll leave that to individual's preference whether its traditional or ROTH). By rolling it over to IRA, Your son is not forced to close the account within 5 years. He will still be forced to close it but the life expectancy now goes up to 58.2 years due to his current age of 25 years old. This means that all he has to do is withdraw the minimum amount and the ratio is now 1/58. Which means $1 million/58.2 years and the first minimum withdrawl will be $17,582 for the first year. By doing this, he can keep the money growing with compounding interest almost forever. Can you imagine starting your IRA with almost a million dollars in the account and it appreciates 10% per year and he has 58 years to finish it. A really big difference.

Sorry this took so long. I hope I didn't bore you to death...

 

[lbschmoll]

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Pyriel:

Thanks, that is good information. May I ask your source on the discussion of withdrawal options for beneficiaries?

Another good reason to transfer part or all of the funds to a traditional IRA is the stipulation that"

[align=left]"Partial Withdrawal[/align]
[align=left]You can make a one-time-only withdrawal of part ofyour TSP account and leave the rest in the TSP until alater date. You cannot make a partial withdrawal ofless than $1,000." (from "Withdrawing your TSP Account after Leaving Service" page 5 http://www.tsp.gov/forms/tspbk02.pdf) [/align]
[align=left]This seems to say that I can only go to the well once, after that I need to make a complete withdrawal or permanent annuity arrangements. Thus if I want to pull money out every year for a vacation or such I need to get the money over to a traditional IRA.[/align]
[align=left]Is this your understaning also?[/align]
[align=left][/align]

 

[Guest]

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Ibschmoll, Go here to download/read:13. Withdrawing Your TSP Account After Leaving Federal Service http://www.tsp.gov/features/index.html
And here's a partial quote:
When you leave Federal service, your agency must give you information about your TSP withdrawal options. Download the booklet Withdrawing Your TSP Account After Leaving Federal from this Web site, or request it from the TSP Service It is important that you read these materials before you choose a withdrawal option.
If you are interested in having the TSP purchase an annuity for you, read the booklet TSP Annuities. Because the tax rules that apply to each of the withdrawal options are complex and may differ depending on the option(s) you choose, you should also read the tax notice "Important Tax Information About Payments From Your TSP Account .
Whether you request your withdrawal on this Web site or on a paper form, your agency payroll office must report your separation and its effective date to the TSP record keeper before your withdrawal can be processed. It usually takes several weeks for agencies to send separation data to the record keeper.
What are my withdrawal options?
The TSP provides several ways to withdraw your account:
You can make a partial withdrawal of your account in a single payment.
You can make a full withdrawal of your account by any one, or any combination, of the following methods:
– A single payment
– A series of monthly payments
– A life annuity
A combination of any of the above three full withdrawal options is called a "mixed withdrawal."
You can also get info re: beneficiaries. Search site for info you want.

 

[pyriel]

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lbschmoll,

Please take a look at www.irahelp.com. Also if you can buy Ed Slott's book, "The Retirement Savings Time Bomb." It has a lot of good information and examples. I say that this is a must have book especially for those that are getting close to retirement. Thanks...