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Thread: Using TSP G fund as your cash bucket in retirement?

  1. #25

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    Default Re: Using TSP G fund as your cash bucket in retirement?

    Quote Originally Posted by Boghie View Post
    flalaw97,

    I think you should get an answer to how liquid assets are in TSP. If you have to notarize some form, send it in, and wait for a check then it is not very liquid. You don't want to do that every month. And, would frequent withdraws like that even be possible? What are the tax consequences.

    Also, are you certain you can withdraw purely from the G-Fund - or, are the withdraws pulled equally from all your funds?

    I think you will find that TSP is set up to be annuitized for monthly withdraws and that the annuity will be for a fixed amount (+ inflation maybe) and on a fixed schedule. Not certain, but...
    I don't think the liquidity is a poblem. My understanding is that when I retire I can set up a monthly installment payment (not an annuity, just a monthly distribution) of a set amount with one notarized form. That will continue and I can adjust it downward at any time (but not more than once per month) without a notary. If I want to increase it, I would have to get a new form notarized. https://www.tsp.gov/publications/tspbk02.pdf I expect that when I turn on mine and/or my wife's SS, the amount I need each month will go down. Also while I am getting those payments if I want a one-time additional payment I can do that too.

    You are correct, you can't pull just from the G unless your whole TSP fund is G (TSP does proportional withdrawals from each fund you are invested in) which is why I was contemplating making the TSP fund all G or L-income to use as my cash fund that supplements my pension and Fers supplement.

    Probably the biggest problem with using TSP just for G fund cash source is the tax withholdings: TSP will withhold 20% in taxes if the amount I have in TSP is not enough to support those installment payments for more than 10 years (IRS rule) So if I don't want to have them withhold that much, my cash bucket would have to be much bigger than I planned.

    So maybe you are right, G fund TSP is not the right place for bucket 1 cash fund.

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  3. #26

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    Default Re: Using TSP G fund as your cash bucket in retirement?

    Quote Originally Posted by Boghie View Post
    flalaw97,


    If you put everything in a self-directed IRA you can withdraw (sell) from any element(s) you wish at any time.
    If you get a decent Financial Advisor he/she can bucketize you and offer advice as things change.
    A good Financial Advisor also factors things in like insurance, etc..
    Here's the problem with putting it all into a traditional IRA - I am hoping to retire at 56 and 4 months old. If I understand the rules correctly, I cannot get access to that money for three years under traditional IRA rules without penalty (must be 59 1/2 to withdraw penalty free). But if you are retired, there is no penalty on TSP withdrawals even if you are under 59 1/2 years old. I think I definitely need to talk to a professional to figure this all out.

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  5. #27

    Default Re: Using TSP G fund as your cash bucket in retirement?

    Quote Originally Posted by flalaw97 View Post
    Here's the problem with putting it all into a traditional IRA - I am hoping to retire at 56 and 4 months old. If I understand the rules correctly, I cannot get access to that money for three years under traditional IRA rules without penalty (must be 59 1/2 to withdraw penalty free). But if you are retired, there is no penalty on TSP withdrawals even if you are under 59 1/2 years old. I think I definitely need to talk to a professional to figure this all out.
    Absolutely correct. IRA has a required minimum age to be able to withdraw penalty free. Just an FYI- you can start opening a Roth IRA, if you are planning to have one- so that day 1 starts counting for the 5 year rule. Roth Rollover/Transfer/Conversion does not carry over the countdown. The receiving Roth rules!!
    Spouse learned it the hard way.
    Although his TSP Roth is over 5 years old, but when he transferred it to his Roth IRA - it assumed the receiving Roth's age.
    Emotions should never play a role in one's investing strategy!
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  7. #28

    Default Re: Using TSP G fund as your cash bucket in retirement?

    Quote Originally Posted by flalaw97 View Post
    Here's the problem with putting it all into a traditional IRA - I am hoping to retire at 56 and 4 months old. If I understand the rules correctly, I cannot get access to that money for three years under traditional IRA rules without penalty (must be 59 1/2 to withdraw penalty free). But if you are retired, there is no penalty on TSP withdrawals even if you are under 59 1/2 years old. I think I definitely need to talk to a professional to figure this all out.
    Withdrawal rules from the TSP before age 59 1/2 penalty free are rigid and can be complicated. From Investopedia.com:
    Understanding Rule 72(t)

    Rule 72(t) actually refers to code 72(t), section 2, which specifies exceptions to the early-withdrawal tax that allow IRA owners to withdraw funds from their retirement account before age 59½, as long as certain qualifications, known as SEPP regulations, are met.





    To take advantage of this rule, the owner of the retirement account must take at least five substantially equal periodic payments (SEPPs). The amount of the payments depends on the owner’s life expectancy as calculated through IRS-approved methods. You must also withdraw these funds according to a specific schedule, and the IRS offers three different methods for calculating your specific withdrawal schedule. You must adhere to the payment schedule for five years or until you reach age 59 1/2, whichever comes later (unless you are disabled or die).

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  9. #29

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    Default Re: Using TSP G fund as your cash bucket in retirement?

    Quote Originally Posted by Skorcher View Post
    Withdrawal rules from the TSP before age 59 1/2 penalty free are rigid and can be complicated. From Investopedia.com:
    Understanding Rule 72(t)

    Rule 72(t) actually refers to code 72(t), section 2, which specifies exceptions to the early-withdrawal tax that allow IRA owners to withdraw funds from their retirement account before age 59½, as long as certain qualifications, known as SEPP regulations, are met.





    To take advantage of this rule, the owner of the retirement account must take at least five substantially equal periodic payments (SEPPs). The amount of the payments depends on the owner’s life expectancy as calculated through IRS-approved methods. You must also withdraw these funds according to a specific schedule, and the IRS offers three different methods for calculating your specific withdrawal schedule. You must adhere to the payment schedule for five years or until you reach age 59 1/2, whichever comes later (unless you are disabled or die).
    I think you are referring to IN-SERVICE "Withdrawal rules from the TSP before age 59 1/2 penalty free are rigid and can be complicated." If I am reading the documentation correctly, as long as I retire after age 55, I have the full range of withdrawal options from TSP without penalty. I can take a single withdrawal (any amount over $1000), start monthly, quarterly or yearly payments (fixed $ amount or percentage of account based on life epectancy) or I could buy an annuity.

    I am pretty sure that Rule 72t does not apply to TSP withdrawals unless they are in-service withdrawals, so I would not have to use SEPP to start making regular withdrawals directly from TSP after retirement, even if I retire at 56 and 4 months old. https://www.fedweek.com/tsp/tsp-earl...-penalty-myth/

    However, if I move money from TSP into a traditional IRA, I WOULD have to use SEPP to avoid the penalty if I start withdrawing from that traditional IRA before 59 1/2.

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  11. #30

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    Default Re: Using TSP G fund as your cash bucket in retirement?

    Quote Originally Posted by Maricar19 View Post
    Absolutely correct. IRA has a required minimum age to be able to withdraw penalty free. Just an FYI- you can start opening a Roth IRA, if you are planning to have one- so that day 1 starts counting for the 5 year rule. Roth Rollover/Transfer/Conversion does not carry over the countdown. The receiving Roth rules!!
    Spouse learned it the hard way.
    Although his TSP Roth is over 5 years old, but when he transferred it to his Roth IRA - it assumed the receiving Roth's age.
    I opened a traditional Roth this year (June 2021) with just $200 to start the clock ticking. I still haven't received confirmation that if I move money from Traditional TSP in 2023 to Roth IRA (yes I will have to pay taxes, but hopefully will be in a lower bracket) if I would be able to withdraw it (and any earnings) tax free five years from this year or have to wait until 2028 (five years from the year of the deposit). I think it would all be available in 2026.

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  13. #31

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    Default Re: Using TSP G fund as your cash bucket in retirement?

    Re: Roth Account: I would suggest that you fund as much as you are allowed/able to this year in your Roth. See https://www.investopedia.com/ask/ans...periodroth.asp
    Although you can always withdraw your contributions prior to 59.5 without penalty, conversions have their own 5 year rule, so you would not be able to withdraw it all, specifically not the earnings.
    Generally the objective is to let it grow over many years to get the maximum benefit, if you are planning on withdrawing it all in 5 years, I am not sure that I would bother with conversions


    Re: IRA Withdrawal: Skorcher was talking about how you can get money out of an IRA before 59.5. It is similar to TSP life expectancy but per the regs you have to do it 5 years or until you turn 59.5, whichever is later. e.g. In an IRA, If you start withdrawing at 58, you would have to continue it until 63 or you face penalties. That is why it is better to stay with TSP until at least 59.5 for those retiring early and wish to eventually move out of TSP to something else.

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  15. #32

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    Default Re: Using TSP G fund as your cash bucket in retirement?

    Quote Originally Posted by evilanne View Post
    Re: Roth Account: I would suggest that you fund as much as you are allowed/able to this year in your Roth. See https://www.investopedia.com/ask/ans...periodroth.asp
    Although you can always withdraw your contributions prior to 59.5 without penalty, conversions have their own 5 year rule, so you would not be able to withdraw it all, specifically not the earnings.
    Generally the objective is to let it grow over many years to get the maximum benefit, if you are planning on withdrawing it all in 5 years, I am not sure that I would bother with conversions


    Re: IRA Withdrawal: Skorcher was talking about how you can get money out of an IRA before 59.5. It is similar to TSP life expectancy but per the regs you have to do it 5 years or until you turn 59.5, whichever is later. e.g. In an IRA, If you start withdrawing at 58, you would have to continue it until 63 or you face penalties. That is why it is better to stay with TSP until at least 59.5 for those retiring early and wish to eventually move out of TSP to something else.
    It doesn't make sense to me to fund Roth now, when I am in highest tax bracket I will ever be (I am not maximizing traditional TSP yet). Should have opened and funded Roth in early career (lower bracket) but didn't know back then. Plan is to let whatever gets put into Roth IRA to be invested aggressively and sit and grow until much later in life.

    Using TSP to fund monthly withdrawals from 56 and 4 months to 59 1/2 is the way to go to avoid penalties. This is what led me to the thought of leaving about $150k in TSP in the G or L income fund to use as my "cash" bucket (5 years of $2.5k per month withdrawals = $2k after taxes) and transferring the rest into a traditional self-directed IRA as the growth and income buckets, that I could invest in stock and bond ETFs. When spouse and/or I hit 62 will likely turn on social security so monthly withdrawal need should be less?

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