59.5 Advice

[kpjones44]

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

[Kaufmanrider]

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/planparticipation/withdrawals/withdrawingAccount.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.

[kpjones44]

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

[ravensfan]

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...

[Kaufmanrider]

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 (http://www.irs.gov/publications/p575/ar02.html#en_US_2012_publink1000261317), later),

[clogletn]

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.
,

[Scout333]

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

[offroad]

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.

[Frixxxx]

Just a heads up from the Federal Digest:

Bill would let retired LEOs, firefighters tap TSP accounts
Two members of the House Ways and Means Committee have introduced legislation that would allow federal law enforcement officers and firefighters who are eligible to retire to withdraw funds without penalty from their Thrift Savings Plan accounts as early as age 50.
Under current law, amounts taken out of retirement accounts before the age of 59½ incur a 10 percent early-withdrawal penalty. But federal law enforcement officers and firefighters, because of the nature of their work, are eligible to retire after 20 years of service at age 50.
The bill’s sponsors said Congress in 2006 already provided such an exemption from the penalty for retired state and local public safety officials.

[ravensfan]

Just a heads up from the Federal Digest:

Bill would let retired LEOs, firefighters tap TSP accounts
Two members of the House Ways and Means Committee have introduced legislation that would allow federal law enforcement officers and firefighters who are eligible to retire to withdraw funds without penalty from their Thrift Savings Plan accounts as early as age 50.
Under current law, amounts taken out of retirement accounts before the age of 59½ incur a 10 percent early-withdrawal penalty. But federal law enforcement officers and firefighters, because of the nature of their work, are eligible to retire after 20 years of service at age 50.
The bill’s sponsors said Congress in 2006 already provided such an exemption from the penalty for retired state and local public safety officials.

Frixxxx,

Just a question on this. Is this bill changing the IRS rules or TSP rules? I ask this because I was in the Military Technician Program and as a CSRS employee (that's the old retirement system for you young folk) I could withdraw from my TSP account without penalty at age 55 as long as my status was "retired". Unfortunately, I learned that even though TSP allowed me to make withdrawals without penalty, the IRS would still penalize you if a withdrawal was made prior to reaching age 59 1/2. So nice for these folks if they can start withdrawing from their accounts at age 50 but keep in mind the IRS will still penalize you.

[Frixxxx]

Frixxxx,

Just a question on this. Is this bill changing the IRS rules or TSP rules? I ask this because I was in the Military Technician Program and as a CSRS employee (that's the old retirement system for you young folk) I could withdraw from my TSP account without penalty at age 55 as long as my status was "retired". Unfortunately, I learned that even though TSP allowed me to make withdrawals without penalty, the IRS would still penalize you if a withdrawal was made prior to reaching age 59 1/2. So nice for these folks if they can start withdrawing from their accounts at age 50 but keep in mind the IRS will still penalize you.

I'm sure it will have to focus on the IRS side. Dispersements from TSP would have to be classified in a specific way.....Probably add 20-200 pages to the tax code...depending on if it passes....But it would be nice for them.

[BichonFreeze]

Frixxxx,

Just a question on this. Is this bill changing the IRS rules or TSP rules? I ask this because I was in the Military Technician Program and as a CSRS employee (that's the old retirement system for you young folk) I could withdraw from my TSP account without penalty at age 55 as long as my status was "retired". Unfortunately, I learned that even though TSP allowed me to make withdrawals without penalty, the IRS would still penalize you if a withdrawal was made prior to reaching age 59 1/2. So nice for these folks if they can start withdrawing from their accounts at age 50 but keep in mind the IRS will still penalize you.

Do you know if you get penalized for taking out a loan for a mortgage?

[Lindoug]

No penalties for loans, either TSP or IRS, because you are paying that money back, it isn't a distribution.

[Stoplight]

Frixxxx,

Just a question on this. Is this bill changing the IRS rules or TSP rules? I ask this because I was in the Military Technician Program and as a CSRS employee (that's the old retirement system for you young folk) I could withdraw from my TSP account without penalty at age 55 as long as my status was "retired". Unfortunately, I learned that even though TSP allowed me to make withdrawals without penalty, the IRS would still penalize you if a withdrawal was made prior to reaching age 59 1/2. So nice for these folks if they can start withdrawing from their accounts at age 50 but keep in mind the IRS will still penalize you.

Ravensfan,

Hmmmmm....Now, I'm retired FERS, not CSRS with a TSP account, AND I'm NOT LEO, so maybe we're talking "apples and oranges"...just posting this for the sake of clarification ! BUT...I have not been penalized by anybody for withdrawing from my TSP at age 57, as long as I had my 30 years, and was above the FERS Minimum Retirement Age (MRA)...i.e. "retired"...which I was/am... That's EXACTLY the reason I didn't roll my entire TSP balance over to my IRA when I retired...I left enough in there to meet my projected withdrawal needs until I turned 59.5 and could start pulling from my IRA without penalty.

I understand the LEO IRS rules may be WAY different...never followed the "72T Withdrawal" discussions much, since it didn't pertain to me :)

OTOH, I may have guys in trench coats knocking on my door, or black helicopters circling overhead, any minute now :D

Stoplight...

[ravensfan]

Do you know if you get penalized for taking out a loan for a mortgage?

One of my co-workers made a loan against his TSP and was not able to repay it before he retired. When he retired, both TSP and the IRS treated the loan like a distribution and therefor both penalized him the FULL amount of the original loan. When he outprocessed he was given the opportunity to pay the loan in full but because of his financial situation was not able to take advantage.

As for taking out a loan for a mortgage, I would read up on the rules for that and then contact TSP, IRS and HRO so you fully understand all aspects of doing so. I think we talked about this once before and I said I was not a big fan of the loan program. But hey if you are young in your career and prospects for continued employment are good then go for it.

Hope this answered your question.

V/r
Ravensfan

[Stoplight]

TOTALLY AGREE with Ravensfan ! Read up on the rules BEFORE you take out a loan !!! And, if you're a youngster, look at the long-term impact on your retirement balance before you go this route !!! It's tempting, but evaluate your options !!!

OTOH, there ARE "situations" where taking a loan can make sense...in my personal case, I was late in my career, with a large TSP balance...needed cash to make a down payment on my house in FL, because my house in MD had not sold ; took the loan, and once the MD house finally sold, I paid it back as a lump sum...

Worked out good for me, but EVERYONE'S personal situation is different ! Do the math before you decide !!!


Stoplight...