By Mike Miles
Early retirement
April 19th, 2012 | Uncategorized
Q. I am a 54-year-old letter carrier with 24 years postal and nine years military. According to Senate bill S.1789, will I be eligible for early retirement? What about the Social Security supplement? How does this affect my Thrift Savings Plan? Can I get that also?
A. You will have access to your TSP account for retirement income as soon as you separate from service. You will be subject to the early withdrawal penalty until you reach age 59½ unless you qualify for one of the exceptions listed on page 4 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. Note that one of the exceptions is for those who separate from federal service during the calendar year in which they reach age 55.
Tags: early withdrawal, military, penalty, Postal Service, TSP
Moving TSP funds into an IRA
February 27th, 2012 | Uncategorized
Q: I am a Federal Employees Retirement System employee retiring on April 30, under the Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay at age 55. Can I take some or all of my Thrift Savings Plan balance and transfer it to a self-directed individual retirement account? What is the process for doing that? What are the estimated costs and penalties?
A: You may roll over your TSP assets to an IRA following separation at at 55 with no penalty. Use Form TSP-77 to request a partial withdrawal or Form TSP-70 to request a full withdrawal of your account assets.
Tags: early withdrawal, FERS, Individual Retirement Account, IRA, thrift savings plan, TSP, TSP forms, TSP transfer, VERA, VSIP
Alternatives to managing your own retirement funds
February 27th, 2012 | Uncategorized
Q: I’m tired of moving funds all over the place trying to maximize my money in the Thrift Savings Plan. I have done so-so — retired federal law enforcement, 30 years of service, now 51 years old. I am going to start withdrawing funds at 59 1/2. I want to maximize my value in eight or nine years. I know it is hard to have the best of both worlds (safety of funds vs. maximized rate of return) — what are your thoughts?
A: I can’t possibly give you reliable investment advice through this forum, without the appropriate understanding, research and analysis. Managing the money to support your desired standard of living has its advantages, if it’s done right. If not, it can be disastrous. If you’re not competent in pension fund management (which is what’s required), then you should consider hiring someone who is. One way to do this is to use your money to buy an immediate, fixed annuity to guarantee lifetime income.
Tags: early withdrawal, money management, thrift savings plan
Exemption from withdrawal penalty?
December 6th, 2011 | Uncategorized
Q: I am 51 and will retire from federal law enforcement after 24 years of service. Will I have to pay the 10 percent penalty for early withdrawal? I was always told the federal hazardous duty act exempted me from the provision.
A: It is my understanding that the exemption applies only to withdrawals from a defined benefit pension plan, and not to withdrawals from defined contribution plans like the TSP. Check with a CPA to be sure before you proceed.
Tags: early withdrawal, TSP withdrawal
Disbursement at retirement
November 15th, 2011 | Uncategorized
Q. I am 58 years old, in FERS, and plan to retire in two months. I am going to roll over my TSP into an IRA and take a large disbursement to pay some bills and get set up. I understand, at retirement, that this one-time disbursement will not be subject to the 10 percent early withdrawal penalty.
However, I have an outstanding loan balance with my TSP. I wanted to use part of my disbursement to pay this loan off, but have been told by TSP it will be considered another disbursement — but it will not be subject to the 10 percent penalty, either. So, it looks like I will be taking three disbursements at retirement: 1) TSP loan repayment; 2) for my personal use; 3) remainder rollover into an approved IRA. Where do I stand in regards to the 10 percent penalty with these disbursements?
A. Since you are retiring during or following the calendar year when you reached age 55, your TSP withdrawals will be exempt from the early withdrawal penalty. Note that withdrawals from an IRA will not enjoy this exemption until you reach age 59 1/2.
Tags: early withdrawal, thrift savings plan, TSP
Postal Service early retirement
November 11th, 2011 | Uncategorized
Q. With talk of the Postal Service downsizing I was wondering: I am 48 years old, have 25 years at the Postal Service and four years active military. I realize at 25 years I can retire, regardless of age. But can I access any of my TSP without penalty or must I wait until my MRA of 56? How about the Special Retirement Supplement?
Mike Miles:
A. If you retire before the calendar year in which you’ll reach age 55, your TSP withdrawals will be subject to the early withdrawal penalty until you reach age 59 1/2, unless you can meet one of the exceptions listed on Page 4 of the notice at https://www.tsp.gov/PDF/formspubs/octax92-32.pdf.
Reg Jones:
You would be eligible to receive the special retirement supplement when you reach your minimum retirement age, which in your case would be 56.
TSP restrictions
September 21st, 2011 | Uncategorized
Q: I know I can receive a monthly payment once I retire, I can take all my money out when I retire, and I can leave my money in TSP until I am 70 1/2. Someone told me that there are some restrictions about taking my money out. I am 58 and have 35 years service so when I retire I intend to keep my money in TSP. I know that when I am 70 ½ I have to start taking money out. I want to know if, say five years down the road, I decid I want to take some of my money out. Can I take a lump sum, or do I have to take it all out? Do I only get one withdrawal from the time I retire to when I hit 70 ½. Can I take part of the money out and leave the rest?
A: You are allowed one partial, lump-sum withdrawal from the TSP before you begin taking regular monthly distributions. Once regular monthly payments have begun, you may request a full and final distribution of your account balance at any time.
Tags: early withdrawal, TSP
Skirting the penalty
August 25th, 2011 | Uncategorized
Q. We are getting ready to be offered an early retirement under the Voluntary Early Retirement Authority. I’m a Civil Service Retirement System employee, and I’m thinking about taking the offer. I would like to withdraw my Thrift Savings Plan, but I won’t be 55 until Feb. 22, 2012. Is there any way of getting around paying the 10 percent Internal Revenue Service penalty for early withdrawal under the age of 55?
A. If you actually separate from service on or after Jan. 1, 2012, your TSP withdrawals will not be subject to the early withdrawal penalty. If you separate earlier, you may avoid the penalty by taking a series of Substantially Equal Periodic Payments under IRS code section 72t, or by using the withdrawal to purchase, through rollover, of a life annuity.
TSP MetLife annuity
August 23rd, 2011 | Uncategorized
Q. I have two questions on the Thrift Savings Plan MetLife annuity. On page 11, paragraph 1, under the heading, “How Your Annuity is Taxed,” in the TSP pamphlet, “Withdrawing your TSP Account After Leaving Federal Service” (June 2007), reads:
“… your TSP annuity payments will be taxed as ordinary income in the years when you receive them. However, these annuity payments are not subject to the IRS early withdrawal penalty, even if you are under age 55 when they begin.”
As both my wife and I are under 55 and are considering an early out/buyout that has just been offered, we want to understand all our options for our TSP accounts.
If there is no tax penalty, one option might include using some of the TSP to purchase a MetLife annuity to supplement our pension income stream. Can you confirm this is the case (the TSP representative on the hotline first said it would be subject to the Internal Revenue Service penalty, then when given the language from the pamphlet said “Maybe not, not sure, interesting question” (hardly reassuring). Or do you know what office at the IRS I could call to get an answer?
The other question is: Are the MetLife annuity payments considered income that would reduce either the TSP supplement (at age 56) or Social Security (whenever we choose to draw down)?
A. Payments from a TSP annuity are not subject to the early withdrawal penalty and are not considered earned income.
Tags: annuity, early withdrawal, IRS, MetLife, TSP
TSP withdrawal
July 1st, 2011 | Uncategorized
Q: May I make a partial withdrawal from my TSP account when I retire, if I am 55 years old?
A: Yes.
Tags: early withdrawal, TSP