TSP Withdraw Options

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ynotbop

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I am an LEO and considering retirement at age 50. As I read the TSP phamplets and web page, there appears to be a withdraw option of monthly payments for a specific dollar amount that remains the same for five years or 59 1/2 whichever is longer and is not related to the life expectancy option the TSP web page. More specifically, it appears this option leaves a persons account balance directly with TSP and does not include a roll-over to a traditional IRA. There is very little information concerning this option. Does this option meet the IRS's criteria of Rule 72T thereby protecting these monthly withdraws before 55 from the 10% early withdraw penalty.
 
Can you be more specific? All I can find on the TSP website is the following...

***********************************************************************************************
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 have the TSP transfer all or part of any single payment or, in some cases, a series of monthly payments, to a traditional IRA or eligible employer plan. Payments to you can be deposited directly into your checking or savings account by means of electronic funds transfer (EFT).
 
You need two documents and one form from TSP:
1. Important Tax Information About Payments From Your TSP Account...TSP-536.
2. Withdrawing Your TSP Account After Leaving Federal Service...TSPBK02.
3. Thrift Savings Plan Request for Partial Withdrawl When Seperated...TSP-77.
 
ynotbop said:
Does this option meet the IRS's criteria of Rule 72T thereby protecting these monthly withdraws before 55 from the 10% early withdraw penalty.
Click to expand...

ynot,

I am ATC so this is something that I have studied a bit. As I understand it, to take advantage of 72T the monthly payments would have to be based on the life expectancy tables. You can leave your money in TSP and just tell them that is what you want and they will do the calculations. No need to rollover. However there are several methods of applying 72T and TSP only uses one method. It's the simplest method and the one that pays the least. You can roughly estimate that you would get about 3% of your account balance each year (age 50 - life expectancy roughly 83 = 33 years so 1/33rd of your account). Obviously you then divide by 12 to get the monthly amount. TSP will recalculate the amount once each January. If you do this you have to do it until you are 59 1/2.

Another method allows you to apply a "reasonable" interest rate to your balance. In this case you would have to roll your balance over into an IRA since TSP will not use this method. This methos can almost double the amount you can get each month (which obviously depletes your account quicker. Here is an excellent calculator to help you with this decision.

http://www.cbiz.com/page.asp?pid=4726

Hope this helps.
 
I don't know if this will help with your question but it might. I took a normal retirement (not LEO or ATC or whoever else gets to retire at 50), at 34 yrs (only has to be 30) and Minimum Retirement Age (55 & 2 mos. for me). I took the combination of a lump sum and a series of monthly payments. When you take a series of monthly payments, if you are MRA (55) you avoid the 10% penalty. all you have to do is ensure the amount you chose is an amount that would last through 10 yrs (120 mos) of payments and you don't have to have taxes taken out either. The easiest way to figure the max you can take is divide your balance by 120 mos. That's what the TSP does. I only really wanted mine to last 10 yrs. so I've been withdrawing the max but I move in and out of the various funds and right now, without looking at my spreadsheet, it's up to 15yrs (lasting that is) or a little more if i don't increase the withdrawl rate. I really like doing it this way because I take more out this way rather than having it based on life expectancy (and then dying 15 years earlier), I can move the money around as I want/need, I don't have to have taxes taken out if I don't want to (and I haven't had to pay any yet except on the lump sum the first year), and the fees are so small they're not even noticeable unlike most brokerage costs. You can change the amount once a year but look real close at what you're doing because you're stuck with whatever decision you make for that year. I would move all my money into the G Fund while the paperwork is being processed. Then you don't really have to worry about your balance changing (going down) before the TSP does their thing. I don't know if this helped, but if not you, maybe it will help someone else. Regards, The Walleye Slayer
 
Last edited:
walli1 said:
I don't know if this will help with your question but it might. I took a normal retirement (not LEO or ATC or whoever else gets to retire at 50), at 34 yrs (only has to be 30) and Minimum Retirement Age (55 & 2 mos. for me). I took the combination of a lump sum and a series of monthly payments. When you take a series of monthly payments, if you are MRA (55) you avoid the 10% penalty. all you have to do is ensure the amount you chose is an amount that would last through 10 yrs (120 mos) of payments and you don't have to have taxes taken out either. The easiest way to figure the max you can take is divide your balance by 120 mos. That's what the TSP does. I only really wanted mine to last 10 yrs. so I've been withdrawing the max but I move in and out of the various funds and right now, without looking at my spreadsheet, it's up to 15yrs (lasting that is) or a little more if i don't increase the withdrawl rate. I really like doing it this way because I take more out this way rather than having it based on life expectancy (and then dying 15 years earlier), I can move the money around as I want/need, I don't have to have taxes taken out if I don't want to (and I haven't had to pay any yet except on the lump sum the first year), and the fees are so small they're not even noticeable unlike most brokerage costs. You can change the amount once a year but look real close at what you're doing because you're stuck with whatever decision you make for that year. I would move all my money into the G Fund while the paperwork is being processed. Then you don't really have to worry about your balance changing (going down) before the TSP does their thing. I don't know if this helped, but if not you, maybe it will help someone else. Regards, The Walleye Slayer
Click to expand...

Walli1,

Your response did help me make a decision, but I have been told that whatever combination of withdrawals we choose, we still have to pay taxes on all of them. I need to learn more about this. I intend to do the same you did, a lump sum the first time, and then a series of monthly payments I can change yearly depending on the circumstances. So... if I choose 120 mos. I don't pay taxes on those monthly payments? Is that the driving force? The 120 mos.?
 
CorMaGa34 said:
Walli1,

Your response did help me make a decision, but I have been told that whatever combination of withdrawals we choose, we still have to pay taxes on all of them. I need to learn more about this. I intend to do the same you did, a lump sum the first time, and then a series of monthly payments I can change yearly depending on the circumstances. So... if I choose 120 mos. I don't pay taxes on those monthly payments? Is that the driving force? The 120 mos.?
Click to expand...

You will still have to pay taxes, as it is taxable income... :(

However, your total taxable income may be smaller, thus paying less tax than you would have when you originally earned it. This is one of the arguments for pre tax investment vs a ROTH IRA scenario...
 
I will definitely be checking out that video and reading more up on retirement. Now that CBPO's have 20 year retirement, I need to make sure I am setting myself up nicely for when I get there :-)
 
fedguy07 said:
The options are confusing. I found this recently. an online video regarding TSP monthly options
http://csrs-fers.com/TSPmwoVideo.html
Click to expand...

The software program that is being used in the video (CSRS and FERS Benefit Calculator) is one that I highly recommend. It's not freeware, but the cost is minimal. I used it to compare numerous scenarios before I chose the monthly payment option for tapping my TSP account.

Using the software program, it was easy to see that the monthly payment option would give me the income I need while still allowing me some capital preservation, as long as I'm paying attention to what the funds are doing.

So it's win-win, IMHO.:D

Lady
 
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