Using TSP G fund as your cash bucket in retirement?

[flalaw97]

Re: Roth Account: I would suggest that you fund as much as you are allowed/able to this year in your Roth. See https://www.investopedia.com/ask/answers/05/waitingperiodroth.asp
Although you can always withdraw your contributions prior to 59.5 without penalty, conversions have their own 5 year rule, so you would not be able to withdraw it all, specifically not the earnings.
Generally the objective is to let it grow over many years to get the maximum benefit, if you are planning on withdrawing it all in 5 years, I am not sure that I would bother with conversions


Re: IRA Withdrawal: Skorcher was talking about how you can get money out of an IRA before 59.5. It is similar to TSP life expectancy but per the regs you have to do it 5 years or until you turn 59.5, whichever is later. e.g. In an IRA, If you start withdrawing at 58, you would have to continue it until 63 or you face penalties. That is why it is better to stay with TSP until at least 59.5 for those retiring early and wish to eventually move out of TSP to something else.

It doesn't make sense to me to fund Roth now, when I am in highest tax bracket I will ever be (I am not maximizing traditional TSP yet). Should have opened and funded Roth in early career (lower bracket) but didn't know back then. Plan is to let whatever gets put into Roth IRA to be invested aggressively and sit and grow until much later in life.

Using TSP to fund monthly withdrawals from 56 and 4 months to 59 1/2 is the way to go to avoid penalties. This is what led me to the thought of leaving about $150k in TSP in the G or L income fund to use as my "cash" bucket (5 years of $2.5k per month withdrawals = $2k after taxes) and transferring the rest into a traditional self-directed IRA as the growth and income buckets, that I could invest in stock and bond ETFs. When spouse and/or I hit 62 will likely turn on social security so monthly withdrawal need should be less?

 

[evilanne]

Re: Roth Account: I would suggest that you fund as much as you are allowed/able to this year in your Roth. See https://www.investopedia.com/ask/answers/05/waitingperiodroth.asp
Although you can always withdraw your contributions prior to 59.5 without penalty, conversions have their own 5 year rule, so you would not be able to withdraw it all, specifically not the earnings.
Generally the objective is to let it grow over many years to get the maximum benefit, if you are planning on withdrawing it all in 5 years, I am not sure that I would bother with conversions


Re: IRA Withdrawal: Skorcher was talking about how you can get money out of an IRA before 59.5. It is similar to TSP life expectancy but per the regs you have to do it 5 years or until you turn 59.5, whichever is later. e.g. In an IRA, If you start withdrawing at 58, you would have to continue it until 63 or you face penalties. That is why it is better to stay with TSP until at least 59.5 for those retiring early and wish to eventually move out of TSP to something else.

 

[flalaw97]

Absolutely correct. IRA has a required minimum age to be able to withdraw penalty free. Just an FYI- you can start opening a Roth IRA, if you are planning to have one- so that day 1 starts counting for the 5 year rule. Roth Rollover/Transfer/Conversion does not carry over the countdown. The receiving Roth rules!!
Spouse learned it the hard way.
Although his TSP Roth is over 5 years old, but when he transferred it to his Roth IRA - it assumed the receiving Roth's age.;damnit

I opened a traditional Roth this year (June 2021) with just $200 to start the clock ticking. I still haven't received confirmation that if I move money from Traditional TSP in 2023 to Roth IRA (yes I will have to pay taxes, but hopefully will be in a lower bracket) if I would be able to withdraw it (and any earnings) tax free five years from this year or have to wait until 2028 (five years from the year of the deposit). I think it would all be available in 2026.

 

[flalaw97]

Withdrawal rules from the TSP before age 59 1/2 penalty free are rigid and can be complicated. From Investopedia.com:
Understanding Rule 72(t)

Rule 72(t) actually refers to code 72(t), section 2, which specifies exceptions to the early-withdrawal tax that allow IRA owners to withdraw funds from their retirement account before age 59½, as long as certain qualifications, known as SEPP regulations, are met.

​

To take advantage of this rule, the owner of the retirement account must take at least five substantially equal periodic payments (SEPPs). The amount of the payments depends on the owner’s life expectancy as calculated through IRS-approved methods. You must also withdraw these funds according to a specific schedule, and the IRS offers three different methods for calculating your specific withdrawal schedule. You must adhere to the payment schedule for five years or until you reach age 59 1/2, whichever comes later (unless you are disabled or die).

I think you are referring to IN-SERVICE "Withdrawal rules from the TSP before age 59 1/2 penalty free are rigid and can be complicated." If I am reading the documentation correctly, as long as I retire after age 55, I have the full range of withdrawal options from TSP without penalty. I can take a single withdrawal (any amount over $1000), start monthly, quarterly or yearly payments (fixed $ amount or percentage of account based on life epectancy) or I could buy an annuity.

I am pretty sure that Rule 72t does not apply to TSP withdrawals unless they are in-service withdrawals, so I would not have to use SEPP to start making regular withdrawals directly from TSP after retirement, even if I retire at 56 and 4 months old. https://www.fedweek.com/tsp/tsp-early-withdrawal-penalty-myth/

However, if I move money from TSP into a traditional IRA, I WOULD have to use SEPP to avoid the penalty if I start withdrawing from that traditional IRA before 59 1/2.

 

[Skorcher]

Here's the problem with putting it all into a traditional IRA - I am hoping to retire at 56 and 4 months old. If I understand the rules correctly, I cannot get access to that money for three years under traditional IRA rules without penalty (must be 59 1/2 to withdraw penalty free). But if you are retired, there is no penalty on TSP withdrawals even if you are under 59 1/2 years old. I think I definitely need to talk to a professional to figure this all out.

Withdrawal rules from the TSP before age 59 1/2 penalty free are rigid and can be complicated. From Investopedia.com:
[h=2]Understanding Rule 72(t)[/h]Rule 72(t) actually refers to code 72(t), section 2, which specifies exceptions to the early-withdrawal tax that allow IRA owners to withdraw funds from their retirement account before age 59½, as long as certain qualifications, known as SEPP regulations, are met.

​

To take advantage of this rule, the owner of the retirement account must take at least five substantially equal periodic payments (SEPPs). The amount of the payments depends on the owner’s life expectancy as calculated through IRS-approved methods. You must also withdraw these funds according to a specific schedule, and the IRS offers three different methods for calculating your specific withdrawal schedule. You must adhere to the payment schedule for five years or until you reach age 59 1/2, whichever comes later (unless you are disabled or die).

 

[Maricar19]

Here's the problem with putting it all into a traditional IRA - I am hoping to retire at 56 and 4 months old. If I understand the rules correctly, I cannot get access to that money for three years under traditional IRA rules without penalty (must be 59 1/2 to withdraw penalty free). But if you are retired, there is no penalty on TSP withdrawals even if you are under 59 1/2 years old. I think I definitely need to talk to a professional to figure this all out.

Absolutely correct. IRA has a required minimum age to be able to withdraw penalty free. Just an FYI- you can start opening a Roth IRA, if you are planning to have one- so that day 1 starts counting for the 5 year rule. Roth Rollover/Transfer/Conversion does not carry over the countdown. The receiving Roth rules!!
Spouse learned it the hard way.
Although his TSP Roth is over 5 years old, but when he transferred it to his Roth IRA - it assumed the receiving Roth's age.;damnit

 

[flalaw97]

flalaw97,


If you put everything in a self-directed IRA you can withdraw (sell) from any element(s) you wish at any time.
If you get a decent Financial Advisor he/she can bucketize you and offer advice as things change.
A good Financial Advisor also factors things in like insurance, etc..

Here's the problem with putting it all into a traditional IRA - I am hoping to retire at 56 and 4 months old. If I understand the rules correctly, I cannot get access to that money for three years under traditional IRA rules without penalty (must be 59 1/2 to withdraw penalty free). But if you are retired, there is no penalty on TSP withdrawals even if you are under 59 1/2 years old. I think I definitely need to talk to a professional to figure this all out.

 

[flalaw97]

flalaw97,

I think you should get an answer to how liquid assets are in TSP. If you have to notarize some form, send it in, and wait for a check then it is not very liquid. You don't want to do that every month. And, would frequent withdraws like that even be possible? What are the tax consequences.

Also, are you certain you can withdraw purely from the G-Fund - or, are the withdraws pulled equally from all your funds?

I think you will find that TSP is set up to be annuitized for monthly withdraws and that the annuity will be for a fixed amount (+ inflation maybe) and on a fixed schedule. Not certain, but...

I don't think the liquidity is a poblem. My understanding is that when I retire I can set up a monthly installment payment (not an annuity, just a monthly distribution) of a set amount with one notarized form. That will continue and I can adjust it downward at any time (but not more than once per month) without a notary. If I want to increase it, I would have to get a new form notarized. https://www.tsp.gov/publications/tspbk02.pdf I expect that when I turn on mine and/or my wife's SS, the amount I need each month will go down. Also while I am getting those payments if I want a one-time additional payment I can do that too.

You are correct, you can't pull just from the G unless your whole TSP fund is G (TSP does proportional withdrawals from each fund you are invested in) which is why I was contemplating making the TSP fund all G or L-income to use as my cash fund that supplements my pension and Fers supplement.

Probably the biggest problem with using TSP just for G fund cash source is the tax withholdings: TSP will withhold 20% in taxes if the amount I have in TSP is not enough to support those installment payments for more than 10 years (IRS rule) So if I don't want to have them withhold that much, my cash bucket would have to be much bigger than I planned.

So maybe you are right, G fund TSP is not the right place for bucket 1 cash fund.

 

[Boghie]

flalaw97,

I think you should get an answer to how liquid assets are in TSP. If you have to notarize some form, send it in, and wait for a check then it is not very liquid. You don't want to do that every month. And, would frequent withdraws like that even be possible? What are the tax consequences.

Also, are you certain you can withdraw purely from the G-Fund - or, are the withdraws pulled equally from all your funds?

I think you will find that TSP is set up to be annuitized for monthly withdraws and that the annuity will be for a fixed amount (+ inflation maybe) and on a fixed schedule. Not certain, but...

Those are the things you need answered.

Then, you gotta look at a viable bucket strategy. You are only looking at Bucket 1 and Bucket 3. That is unsafe. You are not buying enough time for Bucket 3.

If you put everything in a self-directed IRA you can withdraw (sell) from any element(s) you wish at any time.
If you get a decent Financial Advisor he/she can bucketize you and offer advice as things change.
A good Financial Advisor also factors things in like insurance, etc..

If I were to keep some assets in TSP it would be the Bucket 3 assets. Those would be invested ONLY in C/S/I. The internal costs of TSP are extremely low, you will not have tax consequences, and those assets cannot be 'borrowed' by the Feds whenever the Feds have trouble increasing their own debt limit - your G-Fund assets are Social Security bonds and can be borrowed by the general fund in times of extreme emergency (ie. whenever politicians can't agree on which cut of pork to buy with borrowed money).

 

[flalaw97]

Boghie, WOW! thanks for the detailed analysis! The 2008 scenario was exactly what I was trying to figure out. I agree that a few intermediate moves (rather than waiting the full 7) from bucket to bucket when it appears we are high in the market makes sense but I am with you on wanting to spend time on thing other than trying to market time.

Now if I can just get my brain past the cost of a financial advisor, I think you are absolutely right - an ounce of planning is worth its weight in gold?

Thanks for all of the input. I love this site!

 

[flalaw97]

flalaw97,
I think you are focused too much on the idea of locking in losses. It is a different mindset in retirement...a balance between preservation of capital and continued growth so a lot depends on your risk tolerance and your actual needs. As a federal employee with a pension, you will have a steady source of income.
Questions to consider: How long before you plan to retire? Have you determined how much money you really need?
Do you have enough in TSP to be comfortable? Do you need to work longer?
This calculator is helpful tool https://www.tsp.gov/calculators/tsp-payment-and-annuity-calculator/#top

If you transfer everything to an IRA, how will those fund be invested? Will it be similar to TSP funds, individual stock or bonds?
Are there any management fees or trading costs?

In a downward market, how long are you going to stay in the C/S Funds before you move to safety or reduce your stock exposure?

...

I think the TSP works just fine in retirement but I wouldn't suggest doing any more transfers than necessary. Your proposal is more complicated and will require more transfers in and out of TSP so although it is possible, I'm not seeing much up side.

evilanne,

Alot of great questions in there, most of which I have been trying to answer. I found the TSP calculator to be a bit too simplistic - it asks for a single monthly amount that you want from TSP. That is going to vary, perhaps significantly as certain triggers happen, like when my wife starts her SS, when I start my SS, when my FERS supplement stops, when the house is paid off, etc. I found a calculator that I like better for the extra detail, but it is not free. https://plan-your-federal-retirement.com/

Maybe I am overthinking it or trying too hard to not have to sell stocks during a down market but it seems to me that perhaps I can hold through a downmarket, even a long one, if I have enough set aside in cash, or cash equivalent and the G fund or L income funds seem like a low cost way to set up a monthly payment without worrying that I am selling stocks during a down market to pay my bills.

As for the money transfered into a traditional IRA, I am thinking those would be in ETFs or mutual funds for growth. And I wouldn't have to pull them in a downmarket but let it ride the market out because I don't need that money yet.

Part of my issue is I would really like to retire in two years at MRA with 31 year service. I just don't know if my TSP is enough to support it so we are trying to live on what that monthly income would look like - $7500 a month to see how it goes.

Thanks for the discussion.

 

[Boghie]

I haven't looked heavily into what the withdraw capabilities are for TSP. I'm still (barely) too young to worry too much about that:nuts:

However, I doubt that withdrawing assets from TSP is as easy or as quick as from an IRA.

Remember, that when you 'bucketize' you will likely need/want at least three buckets - and you should factor in your pensions and other income generating assets into the mix.

1. One of those will be extremely safe money - that would be your pension(s), money market funds, Social Security, pensionized (annuitized) TSP holdings, and the G Fund. Don't expect much return from these assets. They are there for you to completely drain over a period of 5 to 7 years. You will not touch your other buckets over that time - you will allow them to grow.
2. The second will be invested in income assets. Things like bonds, the F Fund, Treasuries, maybe liquid REITS, etc.. These earn interest. They are NOT capital gains assets - that is, you really don't count on growth. However, some growth risk is acceptable. This is where the real issue is nowadays. These assets are not returning the 4% - 7% you need/want. Regardless, the long term return on these assets will normalize to that range. Do not invest this money in equities - no matter how safe you think they are. Nope, not going there. You will replenish your first bucket with this money when Bucket 1 drains after 5 - 7 years. You might look at increasing this bucket's asset base with the third bucket over that time as well. You will have to math this out - and inflation adjust your math.
3. The last bucket is growth. If you follow a true bucket strategy you will not touch this for 7+ years. It will be invested in stuff (S&P 500, C-Fund/S-Fund/I-Fund, growth ETFs, etc.) that are expected to meet market returns. That is, these assets will likely double in 7 or 8 years. This will allow you to replenish your second bucket when you move the assets from your second bucket to the first bucket.

What happens if we hit a 2008 Market Crash again on the 7 year anniversary of your blissful retirement (worst case I can think of):

1. Well, since you 'Bucketized' you had 5 - 7 years of assets that will NOT decline in price. They are stable, interest earning assets. Yeah, some money market funds 'Broke the Dollar' in 2008, but that was extremely temporary and by a penny or so. Basically, all the yammering about 'Breaking the Buck' was journalism malpractice.
2. Your second bucket dropped a point in price but appreciated much more than that in reinvested interest. The overall appreciation was 26% between 2003 (the earliest displayed for the F-Fund) and January 1, 2009.
3. And, your third bucket tanked by 37% at year end - but grew by about 25% from 2003 to January 1, 2009 (Invested in C/S/I). This is worst case and if you were a bit smart about it you would have used opportunities inside the 2001 - 2008 span to rebalance a little for optimization.
4. Finally, remember what prices were like on January 1, 2009. Yup, vendors and service providers were fighting (and pricing) to stay alive. Their pain was your gain. Everything was cheap - thus, you needed less money to live off of.

Bucketizing would not have been perfect between 2000 and 2009, but it would have been safer than other forms of asset management. Personally, during great years I would move a little of Bucket 3 to Bucket 2 over the seven year horizon. Maybe, if my Bucket 2 has grown wildly, I would move some of it to Bucket 1. That is 'market timing' so do with it what you will. If you just held through it without rebalancing you would also have been fine. Bucket 2 would replenish Bucket 1, Bucket 3 would be able to replenish Bucket 2, but your concern would have been the asset value remaining in Bucket 3. However, the YUUUUGE growth in Bucket 3 between January 1, 2009 and January 1, 2016 would have much more than dealt with that. Without touching anything in your bucket strategy you would have been much wealthier on January 1, 2016 than you were on January 1, 2003. Your next seven years would be pure bliss - even the F-Fund value grew YUUUGELY in that time period.

Now, to your question.

• Personally, I would look at annuitizing some TSP and moving some assets to a self-directed IRA for Bucket 1. You have 5K income from pensions/SS so you will need to have $203,000 in other Bucket 1 assets earning 2% with a 3% inflation rate (those are horrible numbers) to cover 7 years of 2K/month inflation adjusted income. If you annuitize part of your TSP - say to getting a $1K check/month then you obviously need less in the other safe assets.
• I will seek investment advice from my Edelman Financial Advisor on Bucket 2. I would look at using a self-directed account for this. I want to be able to invest in different types of bonds as well as REITS.
• Holding your Bucket 3 assets in TSP C/S/I ONLY would be a good option because the costs are so low. You will not beat the cost of TSP anywhere. Even if you think you will/do you don't because of the hidden fees. You might come close, but I doubt it. Personally, I have enough that I will likely push these into an Edelman managed self-directed IRA. I am old and slow and prefer playing World of Tanks over market timing now so off my assets will go. Edelman can diversify those holdings much more than TSP, but whatever.

Finally, this math is HARD. And, it is/can be difficult to know the opportunities for rebalancing that occur between the timespans. I would recommend a good Financial Advisor NOW rather than later. Why guess?

 

[flalaw97]

Hi- came across this and you might be interested. It's almost similar to a 3 bucket strategy.
https://www.schwab.com/resource-cen...olio?cid=25176197|6069808|153811422|292984198

Thank you for this - it is very much a description of the bucket strategy. Keeping cash for "immediate" needs that you don't have to worry about the market, short term reserve in CDs or bonds for income for intermediate needs and then the rest invested in stocks according to your risk/age. This is the first one that I have seen express the percentages as you progress through retirement 60-69, 70-79, 80+ gradually becoming more conservative because there is less time for stocks to rebound before you need the money. And this one actually recognizes that some people have an income stream (they call it an annuity - it is our pension) which reduces the amount you need in cash.

 

[alevin]

I'm in the boat of trying to figure out withdrawal strategy as well, familiar with bucket approach and ability to put trad IRA into tsp, or back and forth if that seems the right thing to do. not planning on either of those at this point, but the trad ira back into tsp G is a hole card to pull if circumstances warrant.

One thing to be aware as I understand it, is that trad IRA is fair game for lawsuit settlement if on the losing end, but tsp holdings are not. I don't understand the legal logic there, but I've read that little factoid/red flag warning somewhere.

 

[evilanne]

flalaw97,
I think you are focused too much on the idea of locking in losses. It is a different mindset in retirement...a balance between preservation of capital and continued growth so a lot depends on your risk tolerance and your actual needs. As a federal employee with a pension, you will have a steady source of income.
Questions to consider: How long before you plan to retire? Have you determined how much money you really need?
Do you have enough in TSP to be comfortable? Do you need to work longer?
This calculator is helpful tool https://www.tsp.gov/calculators/tsp-payment-and-annuity-calculator/#top

If you transfer everything to an IRA, how will those fund be invested? Will it be similar to TSP funds, individual stock or bonds?
Are there any management fees or trading costs?

In a downward market, how long are you going to stay in the C/S Funds before you move to safety or reduce your stock exposure?

There are many options within TSP...monthly, quarterly or annual withdrawals and 2 IFTs per month that can use to manage the risk.
--You don't have to withdraw anything until 72 when RMDs kick in
--If you are doing a full withdrawal with monthly payments, you can reduce the payments down to $25/month which would make the impact on withdrawals minimal.
--Life expectancy payments adjust automatically each year and are similar to 4% rule
--If you are sitting in G or have a much higher allocation in the G Fund during a down market, how big of an issue is it really?
--You can make one withdrawal annually and IFT to G or an acceptable allocation based on market conditions prior to the withdrawal, if necessary
--Just consider any losses you incur related to withdrawals attributable to the 5% matching from the government that has grown over many years
--You may want to have a larger emergency or cash fund if you are really worried about a lengthy down turn

I think the TSP works just fine in retirement but I wouldn't suggest doing any more transfers than necessary. Your proposal is more complicated and will require more transfers in and out of TSP so although it is possible, I'm not seeing much up side.

 

[Maricar19]

Hi- came across this and you might be interested. It's almost similar to a 3 bucket strategy.
https://www.schwab.com/resource-cen...olio?cid=25176197|6069808|153811422|292984198

 

[flalaw97]

I'm not sure I read the question correctly, but you cannot take money out of only one fund, if you have money in multiple funds. As the TSP is configured now, all you can do is request an AMOUNT of money as either a one-time payment, or a monthly withdrawl.

for example, if you have 50% of your TSP in the G fund, and 50% in the C fund, you can't ask for just money from the G fund out. TSP will divide your request among all the funds you hold. You'll get half the amount from the G, and half the amount from the C in that case.

I THINK they were talking about changing that in the future- but to the best of my knowledge, still how it works.

You are right and that is why the contemplation is moving most of the money out of TSP and into a traditional (more flexible) IRA and leaving the rest in TSP as "the cash bucket" in G or L income to support a monthly withdrawal that covers the gap between your pension/ss income and your monthly expenditures. Since your entire TSP will be in one fund (G or L-Inc) market doesn't matter for those monthly withdrawals.

 

[flalaw97]

As long as you earn more than what you withdraw each year the balance continues to grow. In years that are really bad like 2009 and early last year with COVID, congress passes special legislation where you don't have to take RMDs


As a government employee, you will have a pension and you are eligible for SS at 62. So I did an internet search and found this article that may be useful https://www.forbes.com/sites/robert...is-broken-heres-a-better-way/?sh=22c522031b33

I think the bucket approach is designed for the very fact that, historically there have been years where you didn't earn more than you withdraw - in fact you didn't earn anything - you lost money that year (2008) and by the next year you still were not back to where you were two years prior (2009). That means that those monthly payments (not necessarily RMDs but monthly cash expenditures to pay for costs above your pension and SS income) that you took out were selling when the price was low (locking in the losses) - and you had to sell more shares to get the amount you needed. The concept of the buckets is that you don't refill the cash bucket from stocks during a 2008 year. You wait and let the market recover and then refill. I liked the article you linked except he was very dismissive of the fact that you are locking in losses -"Where does her spending money come from, you may be asking. From an asset allocation perspective, it doesn't matter because she is withdrawing spending money and then rebalancing what’s left. The end result will be the same once she rebalances her portfolio back to her target asset allocation." The rebalancing happens AFTER the losses have been locked in. I think the big problem is people are still analyzing this as an asset building timeframe when it is an asset spending timeframe. Yes you still allocate resources to continue building but you are selling assets because you no longer have the same income you had in your building years. And Feds have a different dynamic because we have both FERS pension and SS so the need for monthly income is less than someone whose monthly income relies on a small SS payment supplemented by pulling money from their retirement accounts and savings.
The LT capital gains point you made is excellent - and something I still need to do a lot of research on because I haven't dealt with a traditional brokerage account. Thanks for the input and article!

 

[James48843]

I'm not sure I read the question correctly, but you cannot take money out of only one fund, if you have money in multiple funds. As the TSP is configured now, all you can do is request an AMOUNT of money as either a one-time payment, or a monthly withdrawl.

for example, if you have 50% of your TSP in the G fund, and 50% in the C fund, you can't ask for just money from the G fund out. TSP will divide your request among all the funds you hold. You'll get half the amount from the G, and half the amount from the C in that case.

I THINK they were talking about changing that in the future- but to the best of my knowledge, still how it works.

 

[evilanne]

Following.......

Thank you for posting this question and for those providing input/suggestions. I am in the process of retiring and our Charles Schwab Financial Consultant has suggested the same Bucket Strategy. I'm hesitant about moving large amounts of my TSP at one time. Might look at moving 10-20% over a five to ten year period with Roth conversions in the mix.

Definitely have to be careful about tax implications of pulling money out of TSP in large chunks - transfer to IRA vs taxable distribution to you. I also am hoping to move some money in small chunks from TSP to Roth IRA after retirement when hopefully I am in a lower tax bracket than now. That math is taxing my brain (no pun intended).

I personally don't see issue with the proportional monthly withdrawals from TSP. I'm currently doing life expectancy payments and TSP withdraws the same day each month...some months may be up and some may be down but it all balances out over time and you are only withdrawing a small fraction of the total balance. I also have a small inherited IRA with an RMD. In the beginning, if there wasn't cash available I would have to sell something when RMD was due. Then I stopped reinvestments on certain shares so that it would cover the RMD. It also isn't a bad idea to have some cash available in a market pullback to buy something at a reduced price. As long as you earn more than what you withdraw each year the balance continues to grow. In years that are really bad like 2009 and early last year with COVID, congress passes special legislation where you don't have to take RMDs

For moving money out of TSP to convert to Roth, I don't think it is a bad idea to move what you think you will need to convert over the next 3-5 years to a traditional IRA (Institution to Institution Transfer). After dealing with TSP, I would not want to be making transfers on a regular basis. It is easy to convert a traditional IRA to a Roth IRA. You can move the money directly or you can transfer the shares already invested in the Traditional IRA directly to the Roth for the conversion. I think the Roth IRAs should be focused on Growth. But depending on where you want to be withdrawing from, you should consider what type of investments are in each and how they may be impacted by market swings. I didn't see anything regarding any investments in a regular brokerage account. When you need to pull money out for whatever reason, having a traditional brokerage account is beneficial. Anything taken from tradition IRA or TSP is taxed at ordinary rates but LT capital gains are at a reduced rate. This can be beneficial if you are trying to stay within a certain tax bracket for conversions.

When thinking about the original question, I'm sure that the strategy is possible but it really doesn't make sense IMO to use TSP as cash withdrawal system. I think of a Cash bucket as what is in my checking and money market account and in the back of my mind I'm thinking that this proposed bucket system is a way that some financial advisor is trying you get you to transfer all or part of your TSP to them. As a government employee, you will have a pension and you are eligible for SS at 62. So I did an internet search and found this article that may be useful https://www.forbes.com/sites/robert...is-broken-heres-a-better-way/?sh=22c522031b33