Ask The Experts: Money Matters

By Mike Miles

Full TSP withdrawal

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Q. I will take a discontinued service retirement in September and I am going to take a full withdrawal of my TSP ($40,500) as soon as I can. Will I be charged the penalty and what percentage will they take out? I am 56 with 27 years of service.

A. If you separate from federal service during or after the calendar year in which you reached age 55 there will be no early withdrawal penalty assessed. Twenty percent of your payment will be withheld as a deposit against your federal tax liability for the year, unless you request a larger amount.

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TSP loan

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Q. If I retire and still owe on a TSP loan and am going to let it just roll over to be counted as income earned,  can I make monthly withdrawals while waiting for them to close the loan?

A. Yes. Submit form TSP-70.

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Permanently disabled

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Q. I am totally and permanently disabled by the VA due to service-connected disabilities. Can I withdraw some of my TSP without the 10 percent penalty? I’ve done some research and all I can find is the 10 percent penalty does not apply to people with total and permanent disabilities, but all the literature implies this rating comes from the Social Security Administration.

A. The TSP does not levy the penalty. You must convince the IRS that you meet the disability exemption requirement. You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. A qualified physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death.

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Lump-sum rollover

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Q. In the event I choose a lump-sum payout at my departure, can this payout be rolled into my TSP account?

A. No.

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TSP distributions

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Q. I’m in the FERS retirement plan and will retire March 31 from the Defense Department. At the time of retirement, I will have more than $300,000 in my 401k. I have two multiple-part questions:  1. Can I decide how much I want to take in monthly withdrawals and, if so, do I pay the 20 percent penalty monthly or do they take the 20 percent off the $300,000 before I even start getting my monthly payments? 2. If I leave my money in the TSP, do they continue to invest my money, and will I continue to earn interest off of my money and can I move the money around if I so choose? Read the rest of this entry »

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TSP withdrawals

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Q. I retired September 2013 in CSRS after 40-1/2 years. I want to take out a one-time distribution equal to about 25 percent of my TSP account. Is is true I can only take out a one-time distribution or payout? I am over 59-1/2.

A. You are limited to one partial lump-sum withdrawal and a full withdrawal, which may be taken in the form of monthly payments. You must take the partial lump-sum withdrawal before beginning monthly payments.

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Lump-sum withdrawal

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Q. Upon retirement, can I elect to take a full withdrawal in the form of monthly payments, and then at some later date choose to take a one-time lump-sum withdrawal? For instance, three years after retiring, can I choose to remove $50,000 if I have never taken a lump-sum amount.

A. Only if the lump-sum is the entire balance remaining in your account.

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Girlfriend on annuity

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Q. I am 63 and will be retiring under FERS probably within the next two years. Am I allowed to have my long-term girlfriend on my TSP annuity?

A. Maybe:

“If you chose a TSP annuity that provides for a joint annuitant other than your spouse, the joint annuitant must be either a former spouse or someone with an insurable interest in you. This means that the person is financially dependent on you and could reasonably expect to derive financial benefit from your continued life.

Blood relatives or adopted relatives (but not relatives by marriage) who are closer than first cousins are presumed to have an insurable interest in you. If you name such a joint annuitant (i.e., a former spouse or someone with an insurable interest) who is more than 10 years younger than you, you must choose a joint life annuity with the 50% survivor benefit. The only exception is for a former spouse to whom all or a portion of your TSP account is payable pursuant to a retirement benefits court order.

If the person named as your joint annuitant is not presumed to have an insurable interest in you, you must submit an affidavit (i.e., a certification signed before a notary public) from someone with personal knowledge that the named person has an insurable interest in you.
The certifier must know the relationship between you and the joint annuitant and must state why he or she believes that the named joint annuitant might reasonably expect to benefit financially from your continued life.”

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Tax withholding

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Q. I’m 68 and still working, and I started drawing Social Security when I turned 66 two years ago. How do I calculate how much taxes will come out of my Social Security, TSP and FERS retirement checks?

A. You will find the rules for tax withholding from TSP distributions in the table on Page 3 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

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Revocable trust

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Q. I am federal employee and plan to retire in about six months or a year. I want to leave the money in TSP when I retire, but want to include TSP in a living revocable trust. I read online that it is not a good idea because the IRS considers that as a lump-sum transfer and I will be taxed at almost 35 percent. But when I consulted an estate-planning attorney, I was told that I can include TSP in the trust, and it does not make any difference in how I withdraw the money. I am confused. Please advise me if it is a good idea to include TSP in a revocable trust or not. Read the rest of this entry »

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