Time to Withdraw from Your TSP?
You have retired from the Federal Government. Your Thrift Savings Plan (TSP) is brimming with your contributions, the government’s matching contributions, and the growth of these investments. The question is, what should you do with this basket full of money?
The government offers several ways to withdraw your federal TSP money, and some rules you must follow in the process.
What to Consider
Remember, if you are a typical Federal Employee Retirement System (FERS) employee, you will have a Social Security benefit and a FERS retirement benefit in addition to your TSP.
Your decision on withdrawal options should ensure that you will have enough income to carry you through retirement, with your TSP withdrawals, Social Security benefit, and FERS annuity working together to achieve this.
Deadline to make a Decision on a TSP Withdrawal Option
Once you stop working for the Federal Government, you have until April 1st of the year after you turn 72 to select a withdrawal option. If you are still a Federal Employee at 72, you must make a decision by April 1st of the year after you leave the government.
If you do not begin withdrawing by the deadline, your entire account will be essentially frozen. The Office of Personnel Management (OPM) refers to this as forfeiting your account.
You can get your account back, but you will not get back any income earned on the account during the forfeiture period.
After you retire from the government and turn 72 (or if you retire after age 72), you are subject to IRS minimum distribution requirements.
If you are retired and receiving monthly payments from your account before age 72, you will still need to meet the minimum distribution requirements when you turn 72. If your monthly payments are too low, the TSP will automatically send you a check to make up the difference.
Thrift Savings Plan Withdrawal Options
Your TSP offers four different withdrawal options:
- A single payment
- Monthly payments
- A life annuity
- A combination of these three options
Option 1: Single Payment
You can withdraw your TSP balance in a lump sum or partial payment. This is often done to roll over the amount to an IRA or a 401(k). Spousal consent may be required.
Option 2: Monthly Payments
You can have the TSP calculate your monthly payments using your yearly account balance and IRS life expectancy tables.
Your account balance is subject to market volatility, which will affect your monthly payments.
You can also pick a monthly dollar amount yourself, as long as it is more than $25. You can only change this amount once each year.
As we mentioned before, if your total annual withdrawals do not meet the minimum distribution requirements, the TSP will send you a check to make up the difference.
Option 3: Purchasing an Annuity
You can purchase an annuity with all or a portion of your TSP balance, as long as it is equal to or above $3,500. The annuity will pay you a guaranteed fixed amount for life. You can also purchase a joint annuity for you and your spouse.
Option 4: A Combination
You can choose from any number of withdrawal combinations including:
- A lump sum and an annuity
- Monthly payments and an annuity
- A partial lump sum, monthly payments, and an annuity
- A combination of these three options
There are many things to consider before choosing your Thrift Savings Plan withdrawal option. Consult a federal benefits specialist to determine the withdrawal plan that is right for you.
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.