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Thread: New to TSPTalk and a bit lost. MRA and 30+ years. Help

  1. #13

    Join Date
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    Default Re: New to TSPTalk and a bit lost. MRA and 30+ years. Help

    Steve J

    The TSP Guide that DBA referenced is a good resource. With the subscription you can call or email the author with questions.

    It isn't really that difficult. If you are over 55 and under 59.5, TSP is the better option for withdrawals for simplicity, flexibility and avoiding any penalties. Under IRA you can also make withdrawals but to avoid penalty, you have to meet one of the exceptions--primarily 72t or Substantially Equal Periodic Payment (SEPP). SEPP is the same as Life Expectancy Payments prior to age 70.5 TSP uses this in second column when you use https://www.tsp.gov/PlanningTools/Ca...alculator.html. Withdrawing from TSP will simplify any tax implications as your 1099R will be coded correctly, there is no 10% penalty and you can change the amount you need each year.

    Note: All traditional TSP $$$ are taxed as ordinary income. Since you are getting a pension, I would suggest you use actual filing status for withholding plus make additional withholding or estimated tax payments if necessary considering your total estimated income based on your Pension, TSP Withdrawal and any other income.

    If you transfer part of your TSP to an IRA the rules in IRS Publication 590-B https://www.irs.gov/pub/irs-pdf/p590b.pdf apply which would force you to use 72t rules or some other exception in order to access funds without penalty. I assume the financial planner talking about creatively setting up different IRAs would use the same life expectancy calculations to determine how much you would need to put in the IRA you would be withdrawing from based on your needs. The big issue with this is that you will be locked in to this method for 5 years (see Recapture tax for changes in distribution method under equal payment exception on page 23 of 590-B) based on your age.

    If you want to transfer part of your TSP to an IRA for any reason, you need to do the partial withdrawal prior to making the full withdrawal (monthly payments can be any amount you choose >$25/month) based on current rules. I would recommend only transferring money you will not need to withdraw before age 59.5.

    One clarification: Is all of your TSP traditional or do you have Roth or any after-tax contributions in your account? I am assuming all is traditional in my response.

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  3. #14

    Default Re: New to TSPTalk and a bit lost. MRA and 30+ years. Help

    I retired at 55 1/2 and took the life expectancy withdrawal offered by TSP which was exempt from the 10% penalty. Since I didn't actually need the full amount each month I deposited a portion of it into a traditional IRA for tax purposes, the monthly amount was adjusted based on December closing balances each year. I was then able to do a complete rollover into my IRA when I reached 59 1/2 because I wanted more flexibility than TSP was offering. Worked for me.

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  5. #15

    Default Re: New to TSPTalk and a bit lost. MRA and 30+ years. Help

    Great Info! Thanks to all of you for comments and tips. I'm getting closer to retirement and I appreciate the info!
    Don't take my comments as trading advice /IFT: 2-13-24=100G/https://www.theepochtimes.com/ & http://www.ewg.org/PermaCharts@p430#5159/strategy#4918p.410

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  7. Default Re: New to TSPTalk and a bit lost. MRA and 30+ years. Help

    Just kicking the horse one more time... With the great comments and references posted here, it really does seem simple. All my eggs are in one basket, traditional TSP. I will be 56 in a couple weeks (my MRA). I have 30+ years credible years of service. End of the year, I can retire, take a one time lump sum TSP withdrawal then start monthly TSP withdrawals without being subject to a 10% early withdrawal penalty as long as the money remains in TSP. Once again, it seems simple and consistent with everything I've read. PLEASE correct me if I'm wrong. So my retirement will read: 30+ year pension, TSP, and I qualify for the FERS SRS until I reach my early SS age 62...also know it's all taxable income. If all is correct, looks very good to me and already have plans for the next stage of life...no boredom here. I just still don't understand why, after asking two different so called tax experts, they didn't have a clue. As we all know here, I'm not the only FERS employee/retiree with a TSP in the world.

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  9. #17

    Join Date
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    Default Re: New to TSPTalk and a bit lost. MRA and 30+ years. Help

    Steve,

    I've seen this many times, that tax "experts" by and large are not familiar at all with the special rules that apply to Federal employees. So that's why you get different answers. You'd think there would be more tax pros that would know the answers since there are over 5 million people in the TSP, but that's not the case.

    I'm in a similar situation as you, just a couple years ahead of you. I'm FERS (with a CSRS component, but for tax purposes I'm FERS). I retired at 58-1/2 on 12/31/18, and just this month started collecting monthly withdrawals from my TSP. Whether it's a lump sum or monthly payments doesn't matter, all money received from your traditional TSP will be taxed as ordinary income. In my case I'm taking out what amounts to about 4%/year, and I'm putting about half of the withdrawals into savings to save up for future needs like major house maintenance needs, new appliances, and the next new car.

    I've decided to stay with the TSP, in large part due to the greatly expanded rules that the TSP will be rolling out this September. That's just 4 months away now. Starting in September all retirees will be able to change the amount of their monthly withdrawals as often as every month, so in effect you can take out a lump sum whenever you'd like, as often as you like. That flexibility plus the low fees plus not being tempted by the limitless number of ways to totally screw up and lose your savings (e.g., trying to catch the next high flying pot stock) if you rolled it over to an IRA is enough to keep me in the TSP.

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