Ask The Experts: Money Matters

By Mike Miles

Annual TSP withdrawal and survivor benefits

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Q. I’m a Postal Service employee who is very close to his retirement date. I was told that withdrawing 4 percent of my Thrift Savings Plan savings per year would last for a lifetime? Is this true? What if I die two years after I begin to draw and my benefits are left for my daughter who is only 38 now? Will she receive the money for a lifetime also? Or will she be paid only the balance?

A. You can’t be sure that a 4 percent annual withdrawal rate will be safe. It depends upon a number of factors, including how you invest and manage your account. Your beneficiary will paid the lump-sum balance in your account after you die.

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Am I being taxed twice?

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Q. I am a FERS retiree from the federal government in March 2011. I received the VERA/VSIP in a lump sum of $25,000 ($18,000 after taxes). In July, I withdrew a lump sum from my TSP to pay off my mortgage, that amount was also taxed. Since the lump sums I received were taxed already, how is it that I have to claim them as income? I am preparing my 2011 taxes and those lump-sum payments make it appear that I earned more than $100,000 in 2011. It seems to me that I am paying taxes twice on the money. Am I right? Would it have been more to my advantage if I had received the lump sums this year (2012)?

A. You were not taxed on the money before you received it. Money was withheld against your tax liability. You must claim the gross amounts as part of your income, which they are, and you will also receive credit for the withholding against your tax bill.

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Monthly TSP payments

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Q. I want to take a lump-sum partial payment at retirement and leave the remainder in my Thrift Savings Plan for the future. When I decide to start taking disbursements from my TSP, can I take them as partial monthly payments and adjust the monthly amounts on an annual basis?

A. Yes, you may. However, monthly payments are considered a method of full, rather than partial, withdrawal.

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Partial withdrawal or loan?

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Q. I am a 57-year-old retiree. I retired two years ago. Our daughter is getting married, and I would like to help her with $15,000 for the wedding coming up later this year. We have just over $100,000 in our Thrift Savings Plan account. We know we can only make a one-time withdrawal before we’re 59½ years of age without a penalty. So if we make a one-time partial withdrawal this year, we will not be able to make another withdrawal without penalty charges until after we are 59½. Would it be wiser to take out a $15,000 loan or make a partial TSP withdrawal? What other options should we consider?

A. The early withdrawal penalty and the one-time partial withdrawal restriction for TSP are two separate, unrelated things. TSP limits you to one partial withdrawal in your lifetime. After that, you may only take a full withdrawal, either as monthly payments or a lump-sum distribution. You may get around this by rolling over your TSP account to an Individual Retirement Account, but then you will be subject to the early withdrawal penalty before you reach age 59½ unless you meet one of the exceptions.

You might want to consider taking the partial withdrawal for the wedding and then starting a stream of monthly payments from your TSP to make sure you have enough to live on. You may change the amount of the monthly payments once each year in January.

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TSP lump-sum withdrawal

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Q. I am an FAA air traffic controller with 27 years of service. I was wondering about the age 55 rule for a one-time withdrawal of TSP funds without penalty. If I retire at age 53, can I take out a lump sum when I turn 55, or do I have to work and retire the year I turn 55 to do this? If so, how much money can be taken out without penalty. I also was wondering if I worked till mandatory retirement age, and get forced out, can I still get the one time lump-sum withdrawal without penalty when I am 56 or anytime after this?

A. Unless you retire (or otherwise separate from federal service) during, or after, the calendar year in which you reach age 55, your TSP withdrawals will be subject to the early withdrawal penalty unless you can meet one of the exceptions listed on Page 4 of this notice: https://www.tsp.gov/PDF/formspubs/octax92-32.pdf.

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Pension payout

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Q. I am currently employed and have the option of receiving a lump-sum payment for my pension payout. I would need to roll that over into an account that I could receive a monthly payment from. Do you have any advice as to what kind of plan would be available for me to do that?

A. A Roth IRA or an IRA are possibilities. You should consult a planner or tax accountant to figure out which solution is right for you.

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TSP payout vs. annuity

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Q. Knowing that everything is a personal situation decision. I’ve gotten advice to take a TSP monthly payout versus the annuity or lump sum. What are the advantages of this action.

A. The advantage versus the lump-sum payout is that the monthly withdrawals will allow you to continue to invest the balance in the TSP until it is withdrawn. The advantage versus the annuity is that you retain control of the assets.

 

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TSP payment

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Q: With it taking up to 12 months to start receiving a full retirement check once you retire, how long will it take to receive my TSP lump-sum payment after I retire?

A: I can’t tell you, exactly, but based on my experience, it shouldn’t take more than a couple of weeks.

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Lump-sum retirement payment

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Q: I am 59 and retired from the post office since July 2009. I receive payments of $900 a month and would like to get a lump sum. Would I have to pay a penalty?

A: If you’re receiving level monthly payments, not based on your life expectancy, and not incurring the penalty on those, then your lump sum will not incur the penalty, either.

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Retirement lump-sum

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Q: I am a FERS employee with the United States Postal Service. When I retire will I be permitted to withdraw the funds in my annuity, my TSP, my accrued vacation and sick leave to be reinvested into private accounts so they can be inherited by our children upon the deaths of myself and my spouse rather than be sucked back into the government’s coffers? If so what forms would that require?

A: You may withdraw your TSP account balance immediately after you retire, although the vested amount is yours to keep and not at risk of being “sucked” back into government coffers. Do your self a favor and leave it there as long as you can. Moving it out means it will likely be “sucked” into investment industry coffers.

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