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Thread: 59.5 Advice

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    kpjones44's Avatar
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    Default 59.5 Advice

    I will turn 59 1/2 on 30 Nov 2013. I am eligible to retire from Civil Service (DOD) via VERA 13 Dec 2013. This is my plan and I welcome any advice:

    I planned on staying active until the middle of Jan 2014 for these reasons:

    • I want to take $100k from my TSP account to fund the business I started last year
    • I don't want the 100k to reflect on my 2013 earnings


    I plan on requesting the money on 2 Jan 14 to ensure it is not tied to my 2013 earnings.

    Any alternatives/advice is welcomed.

    P.S. I will be hiring a CPA to guide my money decisions for the business. Obviously, money management is not my strong suit.

    Thanks,

    KP


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    Default Re: 59.5 Advice

    Quote Originally Posted by kpjones44 View Post
    I will turn 59 1/2 on 30 Nov 2013. I am eligible to retire from Civil Service (DOD) via VERA 13 Dec 2013. This is my plan and I welcome any advice:

    I planned on staying active until the middle of Jan 2014 for these reasons:

    • I want to take $100k from my TSP account to fund the business I started last year
    • I don't want the 100k to reflect on my 2013 earnings


    I plan on requesting the money on 2 Jan 14 to ensure it is not tied to my 2013 earnings.

    Any alternatives/advice is welcomed.

    P.S. I will be hiring a CPA to guide my money decisions for the business. Obviously, money management is not my strong suit.

    Thanks,

    KP
    If you retire during the year you turn 55 or after and withdraw from TSP (other than Life Expectancy) there is no 10% penalty. https://www.tsp.gov/PDF/formspubs/tsp-536.pdf

    Also, I believe it takes about 30 days for the government to notify TSP you retired. You won't be able to take funds out until TSP is notified of your retirement. If you are working until mid January the withdrawal
    request for Jan 2 would be considered an in-service withdrawal. See below from TSP Website.

    If you retire when your eligible, Dec 13, about mid January you'd be able to submit a withdrawal request, and the funds would be on the 2014 tax year. https://www.tsp.gov/planparticipatio...gAccount.shtml

    Consequences of Age-Based Withdrawals


    Your age-based withdrawal is subject to Federal income tax and, in some cases, state income tax. Any tax-exempt or Roth contributions included in your withdrawal are not subject to Federal income tax; neither are any qualified Roth earnings.
    If you make an age-based withdrawal, you will not be eligible to receive a partial withdrawal from the same account after you separate from service.

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    Default Re: 59.5 Advice

    Thanks for the references.
    I was told that an in-service withdrawal would process more quickly than one generated after I retire. That is the reason I wanted to stay active into 2014
    and make an in-service withdrawal. Of course the person who told me this could not cite a reference.

    Thanks, again.

    KP

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    Default Re: 59.5 Advice

    Quote Originally Posted by kpjones44 View Post
    I will turn 59 1/2 on 30 Nov 2013. I am eligible to retire from Civil Service (DOD) via VERA 13 Dec 2013. This is my plan and I welcome any advice:

    I planned on staying active until the middle of Jan 2014 for these reasons:

    • I want to take $100k from my TSP account to fund the business I started last year
    • I don't want the 100k to reflect on my 2013 earnings


    I plan on requesting the money on 2 Jan 14 to ensure it is not tied to my 2013 earnings.

    Any alternatives/advice is welcomed.

    P.S. I will be hiring a CPA to guide my money decisions for the business. Obviously, money management is not my strong suit.

    Thanks,

    KP
    Just wanted to caviate on what Kaufmanrider said. regarding withdrawing TSP afer retiring at age 55. He is correct, TSP will not subject you to the 10% early withdrawal penalty as long as you are retired by your 55th birthday. However, the IRS will penalize you the 10% if you make a withdrawal prior to turning 59 1/2 whether you are retired or not. I realize you want to wait until you retire to make the withdrawal, but I wanted to make you aware that IRS rules differ from TSP rules when it comes to withdrawals prior to reaching age 59 1/2. Good luck and congratulations on your pending retirement...

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    Default Re: 59.5 Advice

    Quote Originally Posted by ravensfan View Post
    Just wanted to caviate on what Kaufmanrider said. regarding withdrawing TSP afer retiring at age 55. He is correct, TSP will not subject you to the 10% early withdrawal penalty as long as you are retired by your 55th birthday. However, the IRS will penalize you the 10% if you make a withdrawal prior to turning 59 1/2 whether you are retired or not. I realize you want to wait until you retire to make the withdrawal, but I wanted to make you aware that IRS rules differ from TSP rules when it comes to withdrawals prior to reaching age 59 1/2. Good luck and congratulations on your pending retirement...
    Yes, we then get into the crazy defined benefit plan versus a defined compensation plan. FER's is defined benefit, TSP defined compensation. Is TSP considered an IRA or a 401k? Is a 401K an IRA?

    Additional exceptions for qualified retirement plans. The tax does not apply to distributions that are:
    • From a qualified retirement plan (other than an IRA) after your separation from service in or after the year you reached age 55 (age 50 for qualified public safety employees) (see Separation from service , later),



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    Default Re: 59.5 Advice

    Quote Originally Posted by kpjones44 View Post
    I will turn 59 1/2 on 30 Nov 2013. I am eligible to retire from Civil Service (DOD) via VERA 13 Dec 2013. This is my plan and I welcome any advice:

    I planned on staying active until the middle of Jan 2014 for these reasons:

    • I want to take $100k from my TSP account to fund the business I started last year
    • I don't want the 100k to reflect on my 2013 earnings


    I plan on requesting the money on 2 Jan 14 to ensure it is not tied to my 2013 earnings.

    Any alternatives/advice is welcomed.

    P.S. I will be hiring a CPA to guide my money decisions for the business. Obviously, money management is not my strong suit.

    Thanks,

    KP
    FWIW: i recently did an in service withdrawl from TSP to an IRA, (just turned sixty). TSP said to allow six weeks but it only took two.
    ,

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    Default Re: 59.5 Advice

    Quote Originally Posted by kpjones44 View Post
    P.S. I will be hiring a CPA to guide my money decisions for the business. Obviously, money management is not my strong suit.

    KP
    Get your CPA to run some tax comps for you. You may be surprised how little difference the year makes. Very likely that you will be in the 25% + bracket in both years. I.E. If you get the withdrawal in 2014 that alone will put you in the 25% + bracket and all of your other income including A/L , annuity, etc. received will be taxed at the higher rate. Is there a particular reason 2014 is better for you? JMHO

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    Default Re: 59.5 Advice

    Dont want to start a new thread since this already has most of what I am interested in understanding. So to summerize:

    1) At 55 you can take out from TSP with no 10% penalty if your RETIRE.
    2) At 55 to 59.5 you might be subject to an IRS penalty of 10% for early withdrawel from a retirement plan (that was not clear in the discussion, if it was YES or NO?).
    3) a 10% penalty applies to your overall income for that year, and only for the portion that was used to increase your income. so if you are poor that year, you will have less proportional penalty of course. Only applies if you are under 59.5
    4) You can take out inservice withdrawels if you are still a federal employee. Will need to investigate that cost.

    I invite corrections to what I am saying here. And links to the corrected discussion reference material.

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