Our own John Stohlman writes for FedSmith.com from time to time and we also get to benefit from his writing. Recently, he wrote about TSP withdrawals, an important topic to be well versed on for any federal employee or retiree.
5 Facts About TSP Withdrawals
So you’ve spent your career putting money into your account, but what do you do once it’s time to retire? There are lots of TSP withdrawal options to choose from, some of them more complicated than others, and if you make the wrong choice you may not be able to fix it. Of course, every person has a different situation, so it’s important to really understand the choices. While we can’t cover all of the complicated factors involved in a single article, here are five commonly misunderstood facts about TSP withdrawals.
1: In-Service Withdrawals
Employees over 59 ½ who haven’t retired yet are allowed to make a one-time, in-service withdrawal. If you do this, you have two options: cash it out, in which case it becomes completely taxable, OR roll it over to an IRA and keep the tax-deferred status. To transfer it to an IRA you need form TSP-75, “Age-Based In-Service Withdrawal Request.” That way, you can avoid being taxed on it until you start receiving installments.
2: Full Withdrawal
If you retire, resign, or are terminated, you may have access to your funds, which are pre-tax. To avoid the tax, you have to roll it over or transfer it to an IRA using form TSP-70 “Request for Full Withdrawal.” This is similar to the process explained in point no. 1, but this applies when you retire, not when you’re still employed.
3: Partial Withdrawal
Once you retire, you can also take a partial withdrawal, using the form TSP-77, “Request for Partial Withdrawal when Separated.” It can only be used once, since you can’t take more than one withdrawal unless you annuitize your TSP.
4: 10% Tax Penalty
If you are 55 or older and retired, you can withdraw from your TSP without being charged the 10% tax penalty (which is normally tacked onto early withdrawals) in addition to regular income taxes. If you’re under age 55 and retired, or if you’re under age 59 ½ and not retired, you will most likely have to pay the extra 10% penalty. There is one detailed exception, the 72(t) tax code distribution guideline, about which we recommend contacting a financial professional.
5: Keeping Your Money in the TSP
If you want to keep your money in the after you retire, you have three options.
Still have questions? We would love to talk to you more about your Federal Employee Retirement!
For over 30 years, federal employee retirement planning has been a key focus of Medallion Financial Group. We recognize that FERS retirement benefits have extra layers of complexity, such as the Thrift Savings Plan (TSP), 401K, Pension plan, FEGLI and more. It’s easy to get lost in a sea of bad advice when so few people understand the basics. We help with the basics and beyond to enable our clients to get the education and advice they need to retire with confidence.
Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.
We strive to exceed client’s expectations – because we have high expectations of ourselves.