Thread: Might be going to school soon...

Originally Posted by Racovius

what will happen to my money in TSP if i leave the military, do not join the workforce, and instead go to school?

You can take it out or leave it in...your choice.

Click TSP Features for Uniformed Services for details:
http://www.tsp.gov/

I can take it out, with no penalty? Does a 401k work the same way, when a person switches from one job to another...that person can withdraw the money without a penalty? If that's the case, what happens to the match the employer put into the 401k? I'm just curious, If i go to school, obviously i'm not rolling the TSP money into a 401k; nobody matched my contributions, so i should be good to withdraw in one sum, except maybe taxes. But is there a penalty?

Originally Posted by Racovius

I can take it out, with no penalty? Does a 401k work the same way, when a person switches from one job to another...that person can withdraw the money without a penalty? If that's the case, what happens to the match the employer put into the 401k? I'm just curious, If i go to school, obviously i'm not rolling the TSP money into a 401k; nobody matched my contributions, so i should be good to withdraw in one sum, except maybe taxes. But is there a penalty?

Any TSP withdrawl before age 59 1/2 incurs a 10% tax penalty.
--------------------------

Additional 10% penalty tax if you are under age 59½
If you receive a TSP distribution before you reach age
59½, in addition to the regular income tax, you may
have to pay an early withdrawal penalty tax equal to
10% of any portion of the distribution not transferred
or rolled over. The additional 10% tax generally does
not apply to payments that are:
• Paid after you separate from service during or
after the year you reach age 55;
• Made because you are totally and permanently

disabled;

*

• Paid as substantially equal payments over your
life expectancy;
• Annuity payments;
• Ordered by a domestic relations court;
• Made because of death; or
• Made in a year you have deductible medical expenses

that exceed 7.5% of your adjusted gross income.*

-----------------

Source: http://www.tsp.gov/forms/octax92-32.pdf

might want to check, but if i remember correctly if you take it out, and then reinvest in a IRA (traditional for sure, not sure about roth) then you wont have to pay the penalty.

i would excercise the Roth option if you can.

Originally Posted by cbackous

might want to check, but if i remember correctly if you take it out, and then reinvest in a IRA (traditional for sure, not sure about roth) then you wont have to pay the penalty.

i would excercise the Roth option if you can.

You can't take it out, and then reinvest it. It has to be a direct rollover out if you do that. If you touch the money in anyway yourself (check, direct deposit into your own account, etc) then it becomes a taxable, and tax penalty event. You can only direct that a qualified investment be moved into another qualified investment.

Be sure to talk to a professional before you make any mistakes that cost you big time.

And if you move it from a pre-tax account into a ROTH account, that's a taxable event. Unless the money came from NON-taxable input from deployment pay, etc.

Please- talk to a professional before you move anything, and fully understand what the tax implications are.

You'll need professional financial planning advice, not something we can give you on an internet bulletin board! Someone who is familiar with the TSP, and with the military angle of the tax implications.

Good luck.

You can take it out and re-invest it in an IRA. It just gets messy if you don't arrange a direct transfer to the IRA. If they issue you a check, then they assume it's a withdrawal and withhold taxes and penalty. If you put the money into an IRA in short order (30 or 60 days I think), you are not subject to the tax or penalty, but keep in mind that TSP withheld part of your distribution as tax, so you'd have to use your own cash to put the withheld amount into the IRA as well, otherwise you'd have to pay tax and penalty on the withheld amount since it wasn't rolled over to an IRA.
If it all sounds complicated, it is. Maybe I didn't explain it that clearly, but the bottom line is the best way to do it is a direct custodian to custodian transfer of the money to an IRA. Any of the big investment firms will walk you through the process and help you out with the forms. Rolling it over to a traditional IRA this way will result in no money being withheld and no tax due.
If you are going to school, it's a great opportunity to convert that traditional IRA to a Roth. You'll likely have little or no income, so you'll be in a very low tax bracket, and can do a conversion for pretty cheap. If you make a lot in the military, wait until the next calendar year, when none of your previous income is in the year of your conversion.
I'd highly recommend against taking the money out and spending it. There are limits to how much money you can put into retirement accounts each year, so take advantage of what you have saved. You can get student loans, grants, GI Bill, etc.

Last of all, you didn't say how much you had saved. If it's below a certain amount ($1500??) TSP doesn't give you an option of keeping it in TSP, and you must take it out. You still can choose what to do with it, of course. If you have more than that amount, you also can choose to leave it in TSP and control your investments there. I'd personally prefer to have it in an IRA where I have more than 5 choices of where to invest.

Hope this made sense and helped a bit. Let us know if there's any other questions. If you say a bit more about your situation and goals/intentions, you might get more tailored help. Good luck.