IRA 72t rules apply to TSP!

**clester** · 11-16-2006, 12:53 AM

Researching the Fedeal Times web site Q and A's I found these little nuggets.

TSP withdrawals and Rule 72t

Question: Concerning options for withdrawing payments from a TSP account, will TSP allow the retiree to select equal monthly withdrawals based on either the amortization and annuity equations which generate a greater monthly payment and still avoid the 10 percent early withdrawal penalty? This would mean that TSP meets the criteria of a Rule 72t plan as established by the IRS.

Answer: The 72t rules apply to the TSP.

This means the amoritization rule can be used leaving your money in TSP.
I gues you'd make your own calculation and request specific dollar amount per month. COOL!

**clester** · 11-16-2006, 12:56 AM

Another one.
Question: I’m covered under federal law enforcement and can retire at 50 and have been exploring withdrawal options of my Thrift Savings Plan account, without the 10 percent early withdrawal penalty, and the IRS Notice 89-25 describes three methods in which payments will be considered to be substantially equal periodic payments: The life expectancy method — calculated under the minimum distribution rules; the amortization method — amortize account balance using life expectancies and a reasonable interest rate; and the “annuitization” method — account balance divided by an annuity factor using both a reasonable mortality table and interest rate. Does the TSP offer these options?

?Answer: The second two methods produce fixed amounts to be withdrawn each year. You'll have to do the calculations yourself — or hire someone to do them for you — and then use form TSP-70 to request regular monthly payments of the calculated amount.

**Wheels** · 11-16-2006, 03:34 PM

Originally Posted by clester

I guess you'd make your own calculation and request specific dollar amount per month. COOL!

Yes this is cool. I didn't know that. However I would be very, very careful because if you don't come up with the right number, you will beassessed the penalty.

I actually like using simple method. TSP will do all the math for you (every year), and the money should be enough to supplement my retirement AND my account is guaranteed to grow. Using the reasonable interest rate will likely cause your account to shrink, albeit very slowly.

**airlift** · 11-17-2006, 02:09 PM

Hello Wheels.

I am new to this thread, so I have basic questions. Does this allow the retiree to continue to trade his/her account indefinitely until the retiree opts for other alternatives? Thanks in advance for your input.

Originally Posted by Wheels

Yes this is cool. I didn't know that. However I would be very, very careful because if you don't come up with the right number, you will beassessed the penalty.

I actually like using simple method. TSP will do all the math for you (every year), and the money should be enough to supplement my retirement AND my account is guaranteed to grow. Using the reasonable interest rate will likely cause your account to shrink, albeit very slowly.

**Wheels** · 11-17-2006, 02:17 PM

Originally Posted by sponsor

Hello Wheels.

I am new to this thread, so I have basic questions. Does this allow the retiree to continue to trade his/her account indefinitely until the retiree opts for other alternatives? Thanks in advance for your input.

Yes. Each year your 72t monthly amount would be adjusted by certain factors depending on which method you are using. Account balance is a big one no matter what method you are using.

**airlift** · 11-26-2006, 09:40 PM

Pardon a "basic" question. What is the current retirement age for federal civilian employees. Is it still age 65? There has been some discussion about extending the Social Security retirement benefits to an older age. Can a federal employee continue to work after reaching retirement age and still draw full retirement income at the same time as the full salary? if not, how does this work?

**Spaf** · 11-26-2006, 10:27 PM

Originally Posted by sponsor

Pardon a "basic" question. What is the current retirement age for federal civilian employees. Is it still age 65? There has been some discussion about extending the Social Security retirement benefits to an older age. Can a federal employee continue to work after reaching retirement age and still draw full retirement income at the same time as the full salary? if not, how does this work?

Sponsor,
You have special groups that can retire early, but for the majority, in FERS, it's age 60. To get social security you have to check your birthday vs the requirements. You can work after retirement however social security has limits on maximum income.
Question: Why work? Golf, hunting, fishing, travel, sports, celebrating, and honey-do's will take 100% of your time!
Spaf

**airlift** · 11-27-2006, 01:35 AM

Spaf,

I loved your suggestion. It would be great!

But I still need to work for a living! Thanks for your orientation.

Originally Posted by Spaf

Sponsor,
You have special groups that can retire early, but for the majority, in FERS, it's age 60. To get social security you have to check your birthday vs the requirements. You can work after retirement however social security has limits on maximum income.
Question: Why work? Golf, hunting, fishing, travel, sports, celebrating, and honey-do's will take 100% of your time!
Spaf

**fuzzduzz** · 12-04-2006, 07:49 PM

I work for the postal system and my retirement age is 56 and 2 months. It depends on what year you were born.

**rondalw** · 12-26-2006, 08:16 PM

Okay, let me make sure I understand this. Pardon my ignorance. I am retiring under the LEO provisons at age 50 with 31 years FERS. I can tell the TSP which monthly amount I would like to draw until 59 1/2?

Thanks

Ron

**Wheels** · 12-26-2006, 10:04 PM

Originally Posted by rondalw

Okay, let me make sure I understand this. Pardon my ignorance. I am retiring under the LEO provisons at age 50 with 31 years FERS. I can tell the TSP which monthly amount I would like to draw until 59 1/2?

Thanks

Ron

Yes and no. If you pick an arbitrary amount to collect each month, you will be assessed a 10% penalty on the amount. If you calculate an amount based on the IRS life expectancy tables, then you will not be assessed the penalty. When you submit your taxes each year, you will have to include a form showing why you don't owe the penalty. If you ask TSP to calculate the number for you they will, and they will recalculate each year. However they use the simplest method which will net you the lowest amount per month ( a very rough estimate would be 3% of your account balance annually divided by 12 to come up with the monthly amount). However there are other ways to calculate the number using " a reasonable" interest rate that will significantly increase the monthly amount, perhaps even double it. But since the TSP does not use any of those methods, you will have to calculate the number yourself (or have someone do it for you) and then submit that amount to TSP. Then as I stated above you'll have to submit an extra form with your taxes to support what you have done.

There is a link to a calculator floating around here somewhere but I don't have it at my fingertips. If someone doesn't beat me to it, I will try to find it when I get home tonight and post it here.

Does this muddy it up for you?