Ask The Experts: Money Matters

By Mike Miles

TSP lump-sum withdrawals and annuities

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Q: My wife retired in February. Our current plan is to take $50,000 from her Thrift Savings Plan to pay off some high-interest debt and leave the rest in the TSP to be invested into a monthly annuity. Is this allowed? Does she have options as to what annuity the money is invested in? Is their an option for a lump-sum survivor payment of the unpaid balance at the time of death? How does she proceed with implementing her final decision?

A: She may take one partial withdrawal from her account, if she hasn’t already done so. She may also use her TSP money to purchase an annuity from MetLife through the TSP, or she may move the money into any individual retirement account and purchase an annuity from any insurance company she chooses. The TSP’s annuities are not investment contracts, they are insurance policies, so once she makes the purchase, she has no further control over the principle. There is a TSP annuity option that provides for a lump-sum payment upon the death of the annuitant, under certain circumstances. You can learn everything you need to know about TSP annuities by visiting the TSP website here.

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Taxes on a TSP lump-sum payout

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Q: I recently retired from the federal government. If I take my money out of the Thrift Savings Plan in a lump sum, will I have to pay Social Security and Medicare taxes?

A: No.

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TSP withdrawal rules

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Q: I retired Nov. 30 from the Foreign Service at age 60 and have a substantial sum in my Thrift Savings Plan. I would like to make a partial withdrawal in the near future to give me cash to renovate my house. In the future, when I decide to make a complete withdrawal, it looks like I could do a combination of a second lump-sum payout and a series of monthly payments. Am I reading the rules wrong? Can I indeed make this second lump-sum withdrawal?

A: Not unless the lump-sum withdrawal is the terminal withdrawal at the end of the the series of monthly payments. You could initiate monthly payments and then decide to end them later, culminating in a final lump-sum withdrawal. Otherwise, you can’t take a second partial withdrawal.

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TSP split between annuity, lump sum

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Q: I am 57 years old and I have 34 years of service, including 21 years of active duty in the Navy. I have already paid my military deposit amount in full. My Thrift Savings Plan account has $200,000 in it. If I retire next year, can I get half of that amount in lump sum, and can I invest the remaining $100,000 in an annuity? If I can, when would I start receiving the annuity? 
 
A: Yes, you may request a partial lump-sum withdrawal, if you have not already done so, and then later request a full withdrawal as a life annuity. Your first montly annuity payment should be received within two months of your request as long as the request is complete and there are no problems.

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