Ask The Experts: Money Matters

By Mike Miles

TSP lump sum

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Q. I am a FERS employee and plan to retire at age 56. Can I take a lump-sum withdrawal from my TSP to pay off my home?

A. Yes, once you retire.

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Monthly withdraw

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Q. I would like to take $3,000 monthly from my TSP when I retire for the first few years, then I start collecting Social Security can I reduce my monthly payment? Then later on change the monthly amount again? I thought I read I can change my TSP payment once a year, but have been hearing from others who have retired you only have a choice of lump sum, annuity, partial lump sum and the rest in monthly payments of your choice, but it stays the same for life. Read the rest of this entry »

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Lump sum, earned income

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Q. I’ll retire under FERS at the end of this year. Will the lump-sum payment for annual leave that I’ll receive early in 2015 would be considered earned income for the purposes of being able to contribute to my non-TSP Roth IRA?

A. No.

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Lump sum, monthly benefit combo

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Q. I reached my MRA last January with 30 years of service. I plan to retire in January. For 2015, I am planning to withdraw $100,000 and then have monthly benefits of $1,000 from my TSP. Can I do that in the same year? Or do I have to wait in 2016 to start my monthly benefit?

A. A partial lump-sum withdrawal and a full withdrawal in monthly payments can both occur in the same year.

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TSP withdrawals without penalty

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Q. I am a FERS employee with a retirement date of May 2018. I will reach my minimum retirement age of 56 at that time, with 36 years of service. Am I eligible, at that point, to receive nonpenalized withdrawals, either payments or lump sum from my Thrift Savings Plan account? Or do I have to wait until I reach age 59½ to not be penalized?

A. You will be exempt from the early withdrawal penalty under those circumstances.

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Lump-sum and monthly TSP withdrawals

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Q. I anticipate starting monthly withdrawals from the Thrift Savings Plan in the near future. Sometime after this, I would like to make a one-time lump-sum withdrawal from TSP to pay for my daughter’s wedding. Can I do this? Can I make a lump-sum withdrawal while taking monthly payments, or am I limited to one or the other?

A. You can take the lump-sum partial withdrawal before starting the monthly payments, but not after.

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Tax implications for TSP withdrawal

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Q. Whether I retire sooner or later than the year I turn 55, what kind of tax implications will I have in taking a partial lump sum or the whole balance lump sum for something like a vacation home?

A. If you retire from Thrift Savings Plan-covered employment during or after the calendar year in which you reach age 55, you will be exempt from the Internal Revenue Service 10 percent early withdrawal penalty for any withdrawals you take.

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Special retirement supplement and TSP

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Q. I am looking at retiring in January 2015. I will be 56 years old Oct. 15. I will have 30 years in as of Dec. 24. Waiting until the end of leave year to cash in all available annual leave. I am looking at cashing out my Thrift Savings Plan in a lump sum to pay off all debts. Will that income be considered part of earned income so that the special retirement supplement is reduced?

If so, would it be in my interest to retire at the end of 2014 so that my annual leave hits that year instead of 2015? I will have more than 1,800 hours of sick leave accrued by the end of 2014. Can that be used to offset the age so that I could perhaps retire earlier so that the TSP lump sum is counted in 2014?

A. Mike: No, the TSP distribution will not be considered earned income. It is considered ordinary income.

Reg: Unused sick leave is only added after you have met the age and service requirements to retire. Therefore, to avoid the 5 percent-per-year age penalty imposed on those retiring under the MRA+10 provision, you’ll have to wait until you reach your MRA and have 30 years of actual service. Regardless of whether you retire at the end of 2014 or the beginning of 2015, you wouldn’t receive a lump-sum payment for your unused annual leave until 2015. It will be considered to earned income, so the annual Social Security earnings limit would apply. Depending on how much annual leave you’ll be cashing in, it could reduce or eliminate the special retirement supplement for 2015.

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TSP withdrawal

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Q. I am 70½ and separated from federal service since 2008. I need to make a withdrawal election (my Thrift Savings Plan has $180,000). I was told I have three options: withdraw the account as a single payment, monthly payments or an annuity (or a combination). Assuming I do not need the money right now, what is the best option to maximize the interest I am getting and paying taxes on what I’ll be withdrawing?

A. If you don’t need the money, I suggest that you begin fixed monthly distributions in an amount that will satisfy or nearly satisfy your required minimum distribution for the year.

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TSP monthly withdrawal, then lump sum 2 years later

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Q. Could you clarify for me the following:

I wish to withdraw funds from my Thrift Savings Plan account (by submitting Form TSP 70, as I am told). To get monthly payments, in section IV, I fill No. 23c: 100% for monthly payments, fixed amount (greater than my RMD).

Suppose two years from now, I want to withdraw the remainder of my TSP funds in one lump sum. Am I allowed to do so? How? By submitting another TSP70?

A. Yes, you may terminate the monthly payments and request a final distribution using Form TSP-79.

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