Ask The Experts: Money Matters

By Mike Miles

TSP in-service withdrawal

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Q. At age 59½, I would like to take an in-service withdrawal in June of about $100,000 from my Thrift Savings Plan. I plan to retire in December at age 60. Once I take the one-time, in-service withdrawal, can the rest be set up on monthly payments after I retire in December?

A. Yes. Monthly payments are a form of full withdrawal.

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Military TSP vs. civil service TSP

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Q. I retired from active duty two years ago and have worked in civil service for one year.  I am contributing 10 percent of my civil service base pay and have a fairly good amount in my active-duty military Thrift Savings Plan. I am entertaining the idea of consolidating my TSP plans for a couple of reasons. First, simplicity of managing one account.  Secondly I believe, from what I have read on numerous sites, I will have greater control of current and future funds using the civil service side of TSP versus the active-duty military side. By this, I mean in-service withdrawals, loans, rolling over to another employer’s 401(k) plan (certainty of employment with civil service is at an all-time low), etc. Has my research misled me, or am I partially correct?

A. Convenience is an advantage. The basic rules for the accounts are the same, although you’re separated from military service and an active employee for the civilian account. This means that you may not take a loan from the military account but can take one from the civilian account. You could roll over the military account to an IRA or 401(k) now, but can’t roll over the civilian account. Whether the differences matter to you, or not, will depend upon your circumstances, but everything you need to know is available at www.tsp.gov.

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Age-based, in-service withdrawal vs. partial withdrawal

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Q. I’m a 32-year FERS employee, 60 years old and about to retire in February 2014. I would like to take out some funds from my Thrift Savings Plan. Should I request an age-based, in-service withdrawal or take a partial withdrawal after I retire?

A. Either will count as your single lifetime partial withdrawal. Will the tax cost for the withdrawal be significantly lower if the money is withdrawn in 2013? If so, you should consider taking the withdrawal now. If not, it will not really matter when you take it in 2014. If you need the money now but would rather have it taxed as 2014 income, you could take a loan now and then fail to repay it after you retire so it will be declared a taxable distribution in 2014.

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TSP transfer to self-directed IRA

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Q. I am 58½ and a federal employee. Can I take all or part of my Thrift Savings Plan and move it to a self-directed IRA? Or do I have to wait until I am 59½? How much tax will I have to pay on this?

A. You may not take an in-service withdrawal for rollover to an IRA until you reach age 59½.

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Use TSP funds to pay CSRS redeposit?

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Q. I worked in the Veterans Affairs Department (CSRS) from 1981 until 1985 and then left federal service and withdrew my retirement. I re-entered federal service in 2007 (CSRS Offset) and have enough money in my Thrift Savings Plan to pay the redeposit for my time from 1981 until 1985. Can I switch over the tax-deferred TSP funds to CSRS without having to pay taxes on the transfer? I know I can make an age-based (age 67) in-service withdrawal into a qualified trust or an eligible retirement plan (as defined in IRC 402 (c) (8)). Is CSRS considered an “eligible employer plan” for such a rollover? And finally, how do I make such a redeposit?

A. You must use after-tax money to make the CSRS redeposit, so a tax-deferred rollover from the TSP will not be allowed.

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TSP and workers’ compensation

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Q. I am a Postal Service employee who has civil service retirement and has been on workers’ compensation for several years now and probably will not go back to work. Can I get my Thrift Savings Plan money now as payments or do I have to retire first? Also, how can I add money into my TSP if I can’t take it out?

A. As I understand it, unless you have separated from covered service, you will be subject to the TSP’s restrictions for in-service withdrawals. You should call the Thrift Line to be sure, however.

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Re-employment and TSP payments

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Q. If I start taking my retirement now at 62 — FERS, Thrift Savings Plan payments and Social Security — and end up being picked back up at some point in federal service: I understand my FERS benefits would be cut by the amount I make in a new job. What about TSP payments? Are they exempt from penalties of re-employment?

A. If you are rehired, your automatic monthly payments will stop and you will be subject to the in-service withdrawal rules.

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TSP withdrawal

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Q. When retiring, can I take a large sum of my Thrift Savings Plan out before starting my monthly allotment with the remaining amount?

A. Yes, as long as you haven’t taken an age-based, in-service withdrawal before you retire.

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Age-based in-service withdrawal

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Q. I am 62 years old and still a federal employee (for the next several years). I am thinking of withdrawing $100,000 of the $250,000 I have invested in Thrift Savings Plan. The purpose behind this withdrawal is to save paying federal taxes on this amount. That is, we will be selling an investment property that has $100,000 in “unrealized tax losses” and we should be able to offset the taxes owed on the $100,000 TSP withdrawal with the $100,000 loss from the sale of the property.

I am confused by a statement on the TSP website that says if you make an age-based withdrawal, “you will lose the opportunity to make a partial withdrawal from your account once you are separated from federal service.” What does that mean?

After the $100,000 withdrawal, we will still have $150,000 in the TSP account.  Does “losing the opportunity to make a partial withdrawal once separated from federal service” mean we can withdraw only the required yearly amount once I reach 70½  and can make no other withdrawals before that time?

Does it mean that we could not, in the future, withdraw another $75,000 if we needed/wanted it?

Does it mean we could withdraw only the whole amount ($150,000) left in the TSP account?

A. You are allowed only one partial withdrawal from your TSP account. After that, your only option is a full withdrawal, which can be in the form of monthly payments or a lump sum, or monthly payments ending in a lump sum. Before you make your age-based, in service withdrawal you should consult a CPA to make sure it will work. Your withdrawal will be considered ordinary income, and not capital gains, for tax purposes.

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Age-based in-service withdrawal

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Q. I am planning on doing an age-based in-service withdrawal of all of my funds prior to retiring. I have a 10 percent contribution going into my Thrift Savings Plan account. Do I need to stop the contributions before withdrawal to make sure no more funds are put into my account after the fact? Or are they automatically turned off once my request is processed?

A. You’ll need to stop your contributions.

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