By Mike Miles
SEPP
October 1st, 2012 | Uncategorized
Q. If I agree to make Substantially Equal Periodic Payments available under Internal Revenue Service code section 72(t) from my TSP, may I do so before I retire and avoid the 10 percent penalty? If it matters, I am a federal law enforcement officer who will have 25 years of service before age 50.
A. No, since you’re not allowed to initiate monthly payments before you retire. The 72(t)-compliant distributions will avoid the early withdrawal penalty whenever they are initiated, however.
Tags: 72(t), early withdrawal penalty, IRS, law enforcement officer, retirement, SEPP
Exception to early withdrawal penalty?
August 22nd, 2012 | Uncategorized
Q. In IRS Publication 575 on page 33, they list an exception from the 10 percent penalty on withdrawing from the Thrift Savings Plan fund for qualified public safety employees. As a federal agent, if I retire in the year in which I turn 50, am I exempt from the 10 percent early withdrawal penalty based on the qualified public safety employee clause? IRS Publication 721, pages 17-18 lists a law enforcement officer as a qualified public safety employee. If this is the case, why do they not mention this when doing pre-retirement seminars?
A. The exception only applies to defined benefit pension plans, not to defined contributions retirement plans such as TSP.
Tags: contributions, early withdrawal penalty, IRS, law enforcement officer, pension benefit, retirement, TSP
Changing monthly TSP withdrawal amount
July 30th, 2012 | Uncategorized
Q. As a federal law enforcement officer with 25 years of service, can I retire at the age of 47 and withdraw monthly payments from my Thrift Savings Plan balance based on life expectancy without paying a 10 percent penalty? If so, can I change this at 60 years of age to a specific dollar amount monthly payment without a penalty?
A. Yes, as long as they continue, without interruption or error, until you reach age 59½. After that, you may change the payments without penalty. The rules for avoiding the penalty are complex and strict, so you should consult and qualified tax adviser before proceeding.
Tags: law enforcement officer, life expectancy, penalty, TSP, withdrawal
One-time penalty-free TSP withdrawal?
June 26th, 2012 | Uncategorized
Q. During a retirement seminar, I was told that federal employees who retire during the year they turn 55 but before age 59½ have a one-time opportunity to withdraw funds from the Thrift Savings Plan without paying the 10 percent tax penalty. Is this correct? If so, how should this withdrawal be reported to the Internal Revenue Service so that the penalty is not assessed? I am a retired federal law enforcement officer, which may or may not be relevant.
A. This is bunk. If you retire during or after the calendar year in which you reach age 55, any and all of your TSP withdrawals are exempt from the early withdrawal penalty for the rest of your life. You should report this seminar provider to your agency to make sure that they get it right in the future.
Tags: early withdrawal penalty, IRS, law enforcement officer, retirement, TSP
TSP upon retirement
May 18th, 2012 | Uncategorized
Q. In March 2013, at age 56, I am eligible to retire under FERS as a federal law enforcement officer with 23 plus years of service (20 as an LEO). I turn 57 on Oct. 11, so I will be forced to retire Oct. 31. Assuming I do not need the money immediately, what are my options with regard to my Thrift Savings Plan? I do not want to pay any penalty and want to pay as little in taxes as possible. It was suggested that I roll it over to an IRA so that in event that I need money in emergency I could withdraw it from my IRA without penalty and/or be taxed at a lower rate.
Also, are you aware of waivers that I could apply for that would grant an extension until age 60?
A. You should leave it in your TSP account for as long as possible. Not only is it a great investment environment, but you’ll be exempt from the early withdrawal penalty since you’re retiring during, or after, the year in which you’ll reach age 55. If you move the money to an IRA, this exemption will not be available.
Tags: early withdrawal penalty, FERS, IRA, law enforcement officer, TSP
TSP withdrawal options
May 9th, 2012 | Uncategorized
Q. As a federal law enforcement officer facing mandatory retirement in 2013, I have been looking closely at my Thrift Savings Plan withdrawal options. When I retire and I leave my complete TSP balance in the G Fund, can I request withdrawals whenever I want and for whatever amount I want?
I see that there are options for setting up a recurring amount each month or year, but can that be changed to month to month or whenever it is needed? For example, because receiving my full retirement pension amount in a timely manner will most assuredly not happen, would I be able to request a lump sum from TSP the month I retire and then wait a couple of months to see how things go, then request a recurring withdrawal every month for a while? And then, if I deem I don’t need extra money for a couple of months, stop the monthly payouts?
I do not want to buy an annuity. I just want to know how flexible I can be in withdrawing from the TSP.
A. You may take one partial withdrawal from the TSP during your lifetime. In addition to this partial withdrawal, you may take a full withdrawal, either as a lump sum or a series of monthly payments that either deplete your account or end in a final lump-sum withdrawal. You may change the amount of fixed monthly payments once each year, in January. Your question is answered in more detail at www.tsp.gov.
Tags: annuity, G fund, law enforcement officer, lump-sum, mandatory retirement, one-time partial, TSP, withdrawal
Penalty exception?
May 7th, 2012 | Uncategorized
Q. I recently retired as a federal law enforcement officer at age 50 after 25 years of service. I am able to presently withdraw a monthly set amount from my Thrift Savings Plan without the 10 percent penalty, correct? May I also reduce the 20 percent tax withholding TSP imposes on me?
A. Based on the information you’ve provided, you will be subject to the early withdrawal penalty unless you take your payments as a series of Substantially Equal Periodic Payments under Internal Revenue Service Rule 72t. There is no exception to the early withdrawal penalty for LEOs. The usual rules apply. You may reduce or waive the automatic withholding. See the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf for details.
Tags: early withdrawal penalty, law enforcement officer, taxes, TSP withholding
Age or years of service?
May 1st, 2012 | Uncategorized
Q. I have been reading your column and am confused. There have been references to receiving a full lump sum payment of Thrift Savings Plan money upon retirement with 30 years of federal service without the 10 percent penalty. Is this true if I am 51 years old, retirement-eligible with 27 years as a law enforcement officer plus five years regular retirement service?
A. No. The relevant exemption to the early withdrawal penalty has nothing to do with years of service but with age. You must retire during the calendar year in which you reach age 55 for it to apply.
Tags: law enforcement officer, lump-sum, penalty, retirement, TSP
TSP advantages
December 28th, 2011 | Uncategorized
Q. I recently retired at age 57 due to the mandatory law enforcement officer provision. Are there any additional options or advantages in receiving payments from my Thrift Savings Plan at age 59½ compared to now?
A. No.
Tags: law enforcement officer, TSP
LEO and TSP
July 6th, 2011 | Uncategorized
Q: I am a 52-year-old law enforcement officer, 6(c) designation, and retired under the Federal Employees Retirement System this past year. Although I thought I had a good handle on this from your website, I am confused by a retirement guide an LEO put out indicating the following: “If you continue your agency employment at least one day into the calendar year of your 55th birthday, you may make unabated penalty-free withdrawals from your TSP account upon retirement. You cannot roll over your TSP and make penalty-free withdrawals at 55.”
The first part indicates than an LEO must work until the year he turns 55 to receive unabated penalty-free access to his Thrift Savings Plan account. So my first question is, can someone in my position who retired with 6(c) coverage at age 52 be eligible to make unabated penalty-free withdrawals from my TSP account when I turn 55? The second question is, can someone in my situation roll over a TSP account into an individual retirement account, whether it is at 52 or 57 years of age?
A: The rule is simple: If you separate from TSP-covered service during or after the calendar year in which you reach age 55, you may take penalty-free withdrawals from your TSP account. This is not true of an IRA, so if you roll over your TSP balance into an IRA after you leave federal service, you will have to wait until age 59 1/2 (unless you qualify for some other exception, such as disability or by employing a series of Substantially Equal Periodic Payments under IRS rules) for the same penalty-free access to your funds.
You are free to roll over your TSP balance to an IRA account any time after you leave federal service.
Tags: 6(c), Individual Retirement Account, IRA, law enforcement officer, LEO, thrift savings plan, TSP