Ask The Experts: Money Matters

By Mike Miles

TSP partial transfer

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Q. Is it possible to do partial transfer of Thrift Savings Plan funds once you leave the government? Could I transfer 50 percent of my TSP funds into an IRA and retain the other 50 percent in my TSP account?

A. Yes, as long as you haven’t already exhausted your single TSP partial withdrawal allowance.

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Partial TSP withdrawal

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Q. I will be 63 years old in August. I have made a previous partial Thrift Savings Plan withdrawal but need another for a down payment on a home.

1. Can I make another partial withdrawal?  If not, what regulation dictates that I cannot?

2. If I can’t make another partial withdrawal and decide to take monthly payments, can I set the monthly payment amount or does TSP have a required monthly distribution rule?  And will the remaining balances continue to earn income?

A. You are limited to one partial withdrawal during your lifetime. I’m not a lawyer, so you’ll have to look up the regulation yourself. You may request automatic monthly withdrawals in any amount you like and change the amount once each year in January. Your remaining balance continues to be invested according to your direction.

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TSP rollovers

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Q. The guidance on partial withdrawals from the Thrift Savings Plan is somewhat confusing if you have both a traditional and Roth portion. It says that withdrawals will be prorated between the two. However, is it possible to solely roll over the Roth portion into another Roth and still leave the entire traditional portion in tact? Or, since these are two distinct types of investments, can the Roth be rolled over into a Roth and the traditional be rolled over into a traditional in amounts, say $5,000 of one and $10,000, even if the balances are not in this same 1:2 ratio?

A. Distributions are prorated between the two accounts, while direct transfers (rollovers) may be designated as applying to each type of money, independently. I suggest that you review Form TSP-77 to see what can and can’t be done.

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Roth TSP withdrawal

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Q. I am 47 and hope to retire at my minimum retirement age in nine years. I contribute to both my traditional Thrift Savings Plan and Roth TSP. A publication I read, “Important Tax Information about Payments from Your TSP Account,” says you will not have to pay taxes for Roth contributions if you follow a two-step rule: Hold for five years + age 59½. But I think it also says that if I transfer my Roth TSP out of the TSP when I retire, the monies will not be subject to taxes. Is this correct?

Can I only roll over my Roth TSP and keep my traditional TSP with the TSP or must I roll over both the Roth and traditional? I ask because I would like to keep my traditional TSP where it is and only roll over the Roth to avoid taxes on distributions that occur before age 59½.

A. The five-year + 59½ rule applies only to earnings, but it applies to both your Roth TSP and a Roth IRA account. You may always withdraw your contributions from either account without tax or penalty. You may transfer all or part of your Roth TSP balance to a Roth IRA, if you are eligible for a partial withdrawal, and leave the remainder in your TSP account, using Form TSP-77.

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VERA and early withdrawal penalty

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Q. I retired as a FERS employee in July 2011 under a Voluntary Early Retirement Authority. I was 56½ with 28 years of service. During my years of employment, a Roth TSP option was not available. Therefore, all of my Thrift Savings Plan money is in a non-Roth/traditional account. I would like to use partial withdrawals to move this money into a Roth IRA. I know I must pay taxes but wondered if I must wait until I am 59½ to avoid penalty? I see references that a 10 percent penalty may not apply in the case of VERA and the employee was at least age 55 at retirement.

A. Since you retired during or after the year in which you reached age 55, the early withdrawal penalty will not apply to your TSP account.

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Taxed twice at 59 1/2?

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Q. In January 2011, I was forced into retirement at age 62 due to a surgery that left me visually impaired. I took a partial withdrawal to pay off personal expenses. The Thrift Savings Plan deducted 20 percent for federal taxes before the distribution was made. However, when federal taxes were filed jointly, I owed $16,000 in taxes due to the TSP money. Why did I pay taxes twice when I met the 59½ age rule?

A. That’s a question that only your tax-preparer can answer, although I doubt you paid taxes twice, and there would have been no early withdrawal penalty because of your age.

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TSP options

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Q. What Thrift Savings Plan options are available upon retirement other than purchase of an annuity? What rules govern TSP rollovers to an IRA?

A. You may leave your money in the TSP and manage it there for life; you may take one partial withdrawal; you may take a full withdrawal as a lump sum or a series of monthly payments, or some combination of these. Internal Revenue Service rules govern rollovers to an IRA. Visit www.tsp.gov for more information.

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Multiple annuities?

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Q. If you had $300,000, could you take $100,000 for an annuity, then keep the other $200,000 in the Thrift Savings Plan? Then, down the road could you take another $100,000 and make that an annuity, too, and keep the remaining $100,000 in the TSP?  Then, can you take the rest of it and make a third annuity a few years later?

A. No, since this would require multiple partial withdrawals.

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Taxes on partial TSP withdrawal before retirement

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Q. I am considering doing a partial withdrawal from my Thrift Savings Plan account and was wondering what the taxes might be. I am 63 years old, still working, with a FERS status. I wanted to move most of my TSP savings into a mutual fund/IRA and continue to make deposits in TSP.

A. If you roll the withdrawal over into an IRA, there will be no tax consequences under current law.

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TSP partial withdrawal

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Q. I am retiring from the Postal Service in 10 days. I have an outstanding loan for $6,500. I do not have the funds to pay off the loan now, and I need an immediate partial withdrawal for $30,000 when I retire. How do I get this done ASAP?

A. Use Form TSP-77 to request a partial withdrawal following separation from service.

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