72t is offered by the TSP

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L1: 72t is offered by the TSPJim–

The TSP does offer a 72t plan. They refer to it as a withdrawal plan based on substantially equal payments based on your life expectancy. Go to their website and check it out. People under age 55 have been using this payout option for years. Again, no need to consult with any “pro” because the pros, called the TSP, have it all in place for you—-you just have to apply for it.2008-11-13 14:39, By: Joel, IP: [24.187.33.126]

L2: 72t is offered by the TSPHi Joel. The problem with the TSP website is that there is really no specific guidance on how individuals under 55 are able to take early withdrawals from the TSPwithout incurring a penalty (outside of taking an annuity). The other stated options are non-specific and simply arevague. The site merely refers you to the IRS website. Additionally, I have personally spoken to two TSP representatives who both told me that I do not have the ability totake early withdrawals without incurring the 10% penalty outside of the annuity option. It seems even they don’t know and/or they don’t want us to know for whatever reason. I did ask. You are fortunate that you know people who have had success with the TSP and its early withdrawal options. I would not mind speaking to them. Presently there is only one FERS retiree in my agency going out this December but he is just going to leave his money in the TSP.In a year or two there will be a big wave of FERS retirees with big TSP balances-a nice attraction to the private sector financial investment banks. I am actually surprised they have not started a marketing campaign specificallydesigned for federal FERS retirees to roll over their TSP to them.2008-11-13 16:13, By: jim, IP: [24.168.115.68]

L2: 72t is offered by the TSP”The TSP does offer a 72t plan. They refer to it as a withdrawal plan based on substantially equal payments based on your life expectancy.”No, the above statement is incorrect. TSP does not specifically offer a SEPP Plan under Sec. 72(t), especially when you choose “Compute my payments” in Section IV, Line 23 c. of TSP Form 70, which is used for TSP Distribution.Go to the Home page of the TSP site, look in the upper right corner for the “Calculators” button and run an example with TSP doing the calculations. You do not have the option of inputting one of the two previous months’ 120% AFR, which is a critical element to calculate a SEPP Plan. Your inputs are your expected account balance and age when distributions start, and an assumed growth rate for the account if you choose. If you input 0% growth you get a reducing distribution rate each year. If you input any positivegrowth rate you get an increasing distribution rate each year. In either case, the amounts will not comply with a proper SEPP Plan calculation. Even if you assume “recalculation” each year in your SEPP Plan, TSP won’t allow it. Please read the following taken directly from the TSP site:”Once your withdrawal has been processed, you cannot return it or change the withdrawal option. However, if you elected to receive all or a portion of your account in a series of monthly payments, you can change your election to a final single payment or change where your payments are being sent. Effective each January, you can change the fixed dollar amount you are receiving. You can also make a one-time change from TSP-computed monthly payments based on life expectancy to a fixed dollar amount.”So, as I have stated several times before on this subject, the only way to do a 72(t) SEPP Plan from the TSP is to do your own calculations for monthly distributions, then ROUND DOWN to an even-dollar amount, enter that amount on Line 23 c. for a fixed dollar amount. Changes to this amount may be made once a year by December 15th to take effect with the following January distribution, assuming your plan uses “recalculation” or you wish to make the one-time change to the RMD method.Jim, congratulations on accumulating $300,000 in your TSP. My hometown has one of the three Air Force Logistics Centers, and I deal with a lot of CSRS and FERS retirees. I’m aware of the impending wave of retirees and, yes, I have positioned myself to be ready to work with them. When TSP started in 1987, I was supervising both CSRS & the new FERS employees, and I had to study up on the new TSP so I could advise my folks about how to set up their investments. I was unique in that nobody else wanted to touch it. So now I feel that I’m in a position to offer the best advice to my retirees. Good luck with your plans.Jim2008-11-14 07:18, By: Jim, IP: [70.167.81.119]

L3: 72t is offered by the TSPI realize I am joining the conversation of an old post, but I’m hoping that Jim (who has posted a number of messages related to the TSP) is still reading this forum. Jim (or anyone else), please let me know if my understanding of the TSP and SEPP (below) is correct, or incorrect, based on your research or knowledge.
I am 52 years old and retired at 51 from the U.S. State Dept. Foreign Service, so I am under FSPS, which is essentially the same as FERS. I realized I need some money from my TSP to supplement my pension until I am 59.5 when my child will be off to college and I can downsize. I have called the TSP a few times and have also read the Question and Answer section regarding the TSP and SEPP withdrawals in Mike Miles’ column on retirement in the Federal Times.
From my conversations with the customer service reps at TSP and two answers from Mike Miles to my specific questions, it seems to me that the lifespan calculations for lifetime monthly payments, as calculated by the TSP, do indeed conform to IRS 72T regs. They do not include any interest rate in the calculations, so they only divide your current balance (or in subsequent years, the Dec. 31/Jan. 2 balance) by your remaining lifespan. So, you would get a slightly lesser amount than if you did the calculations using an interest rate equal to or less than 120% of the Federal mid-term rate for either of the two months prior to starting the plan. However, that does not mean that the TSP calculations are in violation of 72T SEPP rules. They essentially use a 0 percent interest rate, which certainly is “less than” 120% of the Federal mid-term rate, so no violation there, as far as I can see. I plan to start my SEPP plan now, in October 2014, so they will calculate my monthly payments based on my balance now (when they receive my request) and then they will re-calculate once per year based on the Jan. 2, balance (or Dec. 31 balance…same thing).
The TSP reps told me they round to the nearest cents (not the nearest whole dollar amount) and the lady did an example calculation for me using my balance on the day I was talking to her and she indeed rounded the resulting annual amount to the nearest penny, and the monthly amount (dividing the annual amount by 12) to the nearest penny. Multiplying the monthly payments by 12, if they are rounded to cents, will never bring you over $1.00 of the allowed annual amount, so you would never be in violation of IRS rules for going over the amount as they do not care if you are off on your annual amount by a few cents (under $1.00). That is what TSP told me and that is what I have read elsewhere. Jim, do you or your clients have a different experience?
One of the “drawbacks” of the TSP is that you cannot stop your monthly payments once you start your SEPP plan. However, once you reach 59.5 years old and do not want to continue receiving monthly payments based on life expectancy calculations, you can change those payments to any fixed monthly amount you want, down to as low as $25.00 per month (which is almost like stopping payments, in my book). Or, you can request to withdraw the entire remainder of your TSP if you want. Now, later on (after age 59.5) if you have previously switched from the life expectancy method to fixed monthly payments, you may NEVER go back to having the TSP calculate the amount based on life expectancy. You may change the amount of desired monthly payments yourself, with an allowed once per year request, made during their open season from Oct. 1 to Dec. 15 each year. So, if you wanted life expectancy payments at a later date, you would have to calculate them yourself, which I don’t see as a very big problem, unless you start to lose your faculties at some point, but then you could ask someone to help you with it.
I also just called TSP again to ask if, after age 59.5, when my SEPP plan obligations are over, if I can then at any time later (say at age 63 or whatever) change from whatever my monthly payments are to a full withdrawal, either paid to me, or rolled over into a qualifying IRA plan (like Vanguard) and they said, yes, I can do that at any time. So, as I see it, with the TSP, I can essentially do a SEPP plan that meets IRS regs until age 59.5 (or for 5 years, whichever comes later), and then afterwards, I do have a decent amount of flexibility in that I can alter my monthly payments to whatever I want, once per year, OR, I can take the entire balance in a single payment, OR, I can roll over the entire remaining balance into a qualified IRA with another firm, and then follow whatever rules they have for withdrawals.
As I understand it, the TSP has the absolute lowest expense ratio of any IRA plan, so it seems like a good idea to stick with it if I can.
If anyone has any further experience with TSP and SEPP or any contrary or confirming information to what I have written above as my understanding, I would appreciate it.
Adriatic (Carolyn)2014-10-08 17:54, By: adriatic, IP: [76.19.177.83]

L4: 72t is offered by the TSPI think the problem is in your 3rd paragraph where you state that TSP will re-calculate the distribution amount each Jan based upon the 12/31 balance.
I’m not sure if you can do that in a SEPP. I think that the annual amount might have to remain the same.2014-10-08 18:26, By: dlzallestaxes, IP: [96.245.107.94]

L5: 72t is offered by the TSPI don’t see a problem with the third paragraph.
One of the approved IRS methods for withdrawing money under a SEPP plan is to calculate the annual amount according to the IRS life expectancy tables (same as for RMD). Under that method, you have to recalculate the amount once per year as your life expectancy decreases by one year each year (so the life expectancy number you plug into your calculation is one year less each year, provided your age has changed by one year from your last calculation date). In Rev Rule 2002-62 from the IRS (available on this site under the “72t72q Plans” tab) it says that you can use the Required Minimum Distribution Method, recalculating the amount each year by dividing the annual balance by the appropriate number from the life expectancy table. So, I don’t see a problem with that. (maybe the problem is that I put my post on TSP and 72T in a discussion in which the last writer wanted to use a different calculation method). The TSP will only use the life expectancy method, so you can’t use any other, but it does comply with IRS regs.
By the way, when I called the TSP on three different occasions, with questions related to a SEPP, I spoke each time with a different customer service rep. Each time, I reviewed the information provided to me by the previous representative and confirmed it with the next customer service rep., just to double check that they all agreed and that no TSP rep had provided erroneous information. They all agreed with the info provided and all seemed quite familiar with people withdrawing money under the SEPP plan. I suspect they are more familiar with SEPP and 72t now than they were back in 2008 when many of the posts on 72T and TSP were posted on this website. The TSP I think was only started in the mid 1980’s with the new government retirement plan (FERS or FSPS) so people under that plan probably only started to retire and think about drawing on their TSPs in the last 8 years or so.
Adriatic (Carolyn)2014-10-09 13:35, By: adriatic, IP: [76.19.177.83]

L2: 72t is offered by the TSPI direct you to www.tsp.gov/forms/octax92-32.pdf. Page four lists the types of withdrawals that are exempt from the 10 percent penaty tax. The list includes substantially equal payment withdrawals based on life expectancy.Having said that, the question is: Does the calculation performed by the TSP satisfy the unique needs of the recipient.Peace and Hope,Joel2008-11-14 09:57, By: Joel, IP: [24.187.33.126]

L2: 72t is offered by the TSPHello Joel:This whole issue is both simple and incredibly confusing all at the same time. The operative idea here is that US government has a left hand and a right hand and only occassionally do the two hands shake.Simply, the government is an employer, just like any other employer and has adopted a defined contribution plan (qualified under IRC 401(a)) and called it the TSP. On the other hand the same government has enacted laws; primarily IRC 72(t) — actually Congress enacted and the IRS governs. As a result, the federal TSP has to live by all the same rules as any other qualified plan and any participant taking early distributions from the TSP must comply with IRC 72(t) and if taking substantially equal periodic payments then compliance is governed by IRC 72(t)(2)(A)(iv) and Revenue Ruling [email protected] 13:39, By: TheBadger, IP: [72.42.108.19]

L2: 72t is offered by the TSPJim,Thank you for explaining the monthly payment withdrawal option on the TSP-70 part IV 23C. It was a matter I was going to ask about. The TSP website does refer to the monthly payment option but to my knowledge it does not address if someone in my category was permitted to use that specific withdrawal option without incurring the penalty. My recollection is that it only mentioned individuals 55 and over were permitted to use this option. Glad you answered that question.I am trying to see if I got this darn thing right. Using the monthly payment option is better than the annuity option mainly because the entire balance will go to your beneficiaryas opposed to thesingle life annuity. What I am not clear about through no fault of your for sure is what is the difference and the consequences, pros and consif I allow the TSP to compute my monthlypayments as opposed to coming up with a monthly figure on my ownthat may or may not satisfy the IRS so that I would not be hit with the 10% penalty? Can my monthly figures that I come up with be higher or lower than the life expectancy tables? I know you probably already addressed this issue and I do apologize for my confusion. Someone pointed out an article that shows me the Life Expectancy Table(http://www.govexec.com/dailyfed/0407/040607rp.htm . ) Maybe my question should be if I put a monthly figure that is higher than what the Life Expectancy Table would have inputted, will I have satisfied the IRS 72T rule? My second question is I just want to confirm the fact that if I use the monthly payment option that I personally generatedI cannot at anytime up through 59.5 change themonthly payment to another distribution method without incurring the 10% penalty?I guess $300,000 seems like a lot but I have to find a way to make this last hopefully another 40 years. Plus I am only getting 35% of my pension at age 51 and after taxes…… I would have been better off in the CSRS pension plan. I am glad you are helping out fellow retirees especially because the employees in my category think that I have a total understanding of this TSP/IRA early withdrawal concept! In all seriousness there are many of us who are totally confused about this process and its people like you and the other posters herewho will somehow get us home on these issues. If you happen to be in New York next year……. I wish you the best of luck as well. I am still leaning to the roll over IRA but I am not exactly sure yet.Jim2008-11-14 14:35, By: jim, IP: [68.174.27.26]

L2: 72t is offered by the TSPThis is not a reply but a supplemental question to my last post. The following is taken from OPM’s website. Please look at the second paragraph, 2nd sentence and its last sentence regarding the monthly payments option with or without being subjected to the 10% penalty. Jim, I would like to know if this OPM statement is consistent with your position on this matter: “So, as I have stated several times before on this subject, the only way to do a 72(t) SEPP Plan from the TSP is to do your own calculations for monthly distributions, then ROUND DOWN to an even-dollar amount, enter that amount on Line 23 c. for a fixed dollar amount. Changes to this amount may be made once a year by December 15th to take effect with the following January distribution, assuming your plan uses “recalculation” or you wish to make the one-time change to the RMD method.”I am hoping to receive a clarification of this OPM position andif we are all on the same page that you can withdraw money from the TSP and not be subjected to the 10% penaltyif you are under 55 and use the monthly payment fix dollar amount.Thanks.
Thrift Savings Plan Considerations for Special Groups
If you retire under any of the special retirement provisions, you will be eligible to withdraw your Thrift Savings Plan account. You may receive your entire account as a single payment, receive your account in a series of monthly payments, or have the TSP purchase an annuity for you. If you elect a single payment or certain monthly payments, you may have TSP transfer all or any portion of the payment(s) to an Individual Retirement Arrangement (IRA) or other eligible retirement plan.
Thrift Savings Plan payments are taxable as ordinary income for Federal income tax purposes for the year in which they are disbursed. In addition, if you retire before the year in which you reach age 55 and receive a direct single payment or monthly payments determined by dollar amount or number of months before you reach age 59 , the payment(s) will be subject to the Internal Revenue Service 10% early withdrawal penalty tax. If you transfer all or any portion of the payment(s) to an IRA or other eligible retirement plan, the amount transferred is not taxable income when it is transferred (it becomes taxable income when it is disbursed from the plan to which it was transferred) and, consequently, is not subject to early withdrawal penalty tax. If you receive a TSP annuity, or monthly payments computed by your life expectancy, the payments are not subject to the early withdrawal penalty.

previous next 2008-11-15 10:36, By: jim, IP: [68.174.27.26]

L2: 72t is offered by the TSP>>If you receive a TSP annuity, or monthly payments computed by your >>life expectancy, the payments are not subject to the early withdrawal penalty.I’m not really sure what you are asking, but before age 59.5, these payments would qualify as SEPP distributions. An annuity over life qualifies and payments over life expectancy qualify.Other distributions not rolled over into anIRA would be subject to the 10% penalty tax.2008-11-15 14:51, By: Gfw, IP: [216.80.125.206]

L2: 72t is offered by the TSPThe life expectancy method posted on the TSP site appears to be using the RMD method with the Single Life Expectancy Table. This would qualify as a SEPP, butas previously observed, the TSP does not provide the range of support needed to carry out a SEPP plan. Most taxpayers use the amortization or annuitization methods to develop a fixed annual distribution amount, knowing that they can make the one time switch to RMD if they need to. The TSP life expectancy method starts out with the RMD method, and this method requires twice the account balance or more to generate the same distribution. There are also significant restrictions to making changes to the plan to correct a distribution error caused by either administrative lapse or incorrect initial calculation by the employee.Bottom line, although you give up a few basis points in expenses instock index funds vrs the TSP, a low cost provider like Vanguard can come close enough to make the direct rollover to an IRA the better choice due to much less overall risk in busting the 72t plan requirements.2008-11-15 16:10, By: Alan S., IP: [24.116.165.60]

L2: 72t is offered by the TSPAlan:Thanks for researching the RMD distribution method from the TSP. I believe you have answered the less-than clear explanation why distributions “Paid as substantially equal payments over your life expectancy” is really the RMD calculation method.When I described how someone should calculate their SEPP Plan and then use the monthly distribution, fixed dollar amount on Line 23 c. of TSP Form-70, I was assuming either the Amortization or Annuitization methods. Clearly neither of these methods will be a compliant SEPP Plan if the option is to let TSP calculate the monthly distribution amount. Joel:Thanks for the link to the 4-page tax information for TSP distributions. While it provides correct information, it’s about as clear as mud without a good understanding of SEPP Plan concepts. I have not found any reference to distribution methods (Amortization, Annuitization or RMD) in any TSP documentation, and I believe that is a serious shortcoming. For example, on the top of column 2 of page 4 of this document, this paragraph explains that if you switch from distributions using the life expectancy methodto a fixed monthly distribution amount, you”may” be subject to the 10% penalty. I think it would be a lot clearer to say that once you start using the RMD method … which we have determined is the “life expectancy method” described in TSP literature… that you can’t switch to one of the other two methods. Folks on this board can figure this out but the typical TSP participant hasn’t a clue what’s going on or why, or how to keep from having IRS troubles.Jim:Here’s another good reason to rollover to an IRA: Flexibility! By now you should understand the limitations and problems for trying to keep the TSP. It’s fees are probably the cheapest of any Defined Contribution Plan in existence. I still hold to my previoius recommendation that you seek out the services of a Financial Planner that is associated with a Registered Investment Advisor. Since you have indicated that you are not experienced with all of the investment vehicles available to help you work your financial problems … there’s more than index funds that you should consider … get some help from a qualified advisor! In the New York area there are tons of them to pick from in the entire Northeastern US. I’m in Gerogia and don’t have any plans to travel “nawth” anytime soon. So let me wish you good luck and again thank you for your service to our country.Jim2008-11-18 07:52, By: Jim, IP: [70.167.81.119]

L2: 72t is offered by the TSPThanks Jim for your advice and best wishes. Thanks to Alan and toeveryone who posted here too. It is disheartening that the TSP site is so vague when it comes to explaining the early withdrawal distributions for the FERS special category people like myself, firefighters air traffic controllers etc.. especially in the context that the TSP is one third of our retirement system. You would think that they can easily add a chapter explaining in detail how a FERS special category employee under the age 55can withdraw money from the TSP without incurring the 10% penalty. When FERS was first marketed they sold the idea in part that a FERS employee like myself could retire at age 50 with 20 years of service and take early withdrawals from the TSP. Well it is time for the TSP board to step up; update its website to provide greater details on the early withdrawal processand not merely refer us to the IRS or have us going on a fishing expedition to find the correct information. I have recently visited some federal related pension discussion boards and my goodness the misinformation on the 72T ruleand the TSP is beyond belief. It is true that none of us understand the process. It is not that we are ignorant individuals. If I told you I have a Master’s Degree from New York University I don’t believe you would believe me. I have my suspicions as to why the TSP is being evasive but that could be like one of those X-Files episodes. I am not retiring until I master this darn thing. I am very glad I have found such helpful and competent people here.Jim22008-11-18 15:22, By: jim, IP: [68.174.27.26]

L2: 72t is offered by the TSPThe TSP is better suited for asset accumulation۝ rather than income distribution.۝ Keep this thought in mind as you read the rest of my post.

The TSP web site is intentionally vague. They do not want to get into the position of giving tax, legal or investment advice. They really want CSRS / FERS participants to seek advice from outside sources and move the money out so they can wash their hands of the whole situation. Refer to the first sentence above.

I do wish they would include a reference to the fact that the Pension Protection Act (PPA) of 2006 created the penalty-free distributions from the DEFINED BENEFIT (PENSION) PORTION of CSRS / FERS for Special Category employees such as you with 20 years of service and age 50. A simple statement to this effect and a reference to where more information can be found, like OMB or your agency’s HR office, would help clear up a lot of confusion.

Please do not feel bad about not having a complete understanding of how SEPP Plans work with the limited amount of time you have had to learn the subject. I’m sure you can almost do your special occupational job۝ in your sleep because you have 20-years of training and practice. But today you are trying to deal with a complex problem _ designing an income distribution plan that will last for many more years than you have spent working _ that you have no formal training or experience with.

When I retired from the USAF in December, 1992, I had never heard of 72(t). But early in my financial planning career I had to learn how 72(t) worked and to establish plans for several clients. Fortunately for me I too discovered this site and continued my education, driving TheBadger and GFW nuts with my continuous questions to reconfirm elements of a plan. Thanks to them and their patience, I believe that today I have a good working knowledge about the subject. However, occasionally I post something and they are very kind to point out my error, so don’t feel bad about any question you may ask.

Jim, I believe you are now armed with a fairly good working knowledge of SEPP Plans. Now go find a good financial planner to work with. You will be able to find this person because you know the right questions to ask and you will be able to determine when someone either knows the subject or is just blowing smoke.

Good luck.

Jim2008-11-19 07:29, By: Jim, IP: [70.167.81.119]

L2: 72t is offered by the TSPHiJim. Thanks again for your informative response. The TSP does actually have a page at its site entitled the Pension Protection Act of 2006 but….http://www.tsp.gov/forms/ppa2006_db.html

Pension Protection Act 2006

Death Benefit Payments
In the past, spouse beneficiaries could transfer TSP death benefit payments to their IRAs, thereby continuing to defer paying taxes on the funds. Spouse beneficiaries may now also transfer TSP death benefit payments to a Roth IRA, if eligible.The tax rules on Roth IRA transfers are complex, however. We strongly urge spouse beneficiaries to consult a tax advisor about eligibility for and tax consequences of Roth transfers.
As a result of the Pension Protection Act of 2006, non-spouse TSP beneficiaries can now transfer their death benefit payments to an inherited۝ IRA and, in most cases, take required minimum payments based on their own life expectancy. This eliminates the tax hit that many non-spouse beneficiaries were subject to before the law was changed. However, the rules governing “inherited IRAs” are complicated, particularly if the deceased participant is over age 70_. We suggest you discuss this new benefit with your tax advisor or IRA provider as you do your estate or retirement planning.” it makes no reference to the special category people discussed in this topic here. I am not sure why the TSP board decided to leave that part out. I do not expect the TSP site to inform us of the complexities of the IRS early withdrawal rules and its applications. I do however feel that the site should at the very minimum educate us special category people as to how to withdraw money from the TSP without incurring the 10% penalty. For example, the site could reflect for those special category people under 55 who wish to withdraw money directly from the TSP without incurring the penalty, that the TSP applies only the Required Minimum Distribution Method and that it does not accept the Fixed Amortization and Fixed Annuitization Methods on its Form 70. Something along those lines. It could avoid much confusion. It could add those wishing to use the latter methods can do so by rolling over the TSP balance to an IRA for example. I will certainly follow your advice.Thanks and best wishes as well.Jim22008-11-19 16:44, By: jim, IP: [68.174.27.26]

L2: 72t is offered by the TSPI am a great fan of the TSP. Having said that,I urge you towrite to the Executive Director of the TSP and tell him that you would like to see the online calculator programmed to include all approved IRS methods to effectuate a Substantially Equal Periodic Payment plan (SEPP) under section 72t of the Internal Revenue Code. The Calculator is currently programed for one of the methods so it should not be too difficult to include the other IRS approved methods.CCyour letter to the majorunion that representsfederal employees. You may also want to contact the reporter at the Washington Post who frequently writes about the TSP. Rest assured that the TSP wants the Plan to be foryour lifetime—not just for your employment period.A young person starting out today could establish an account that has the potential to lastin excess of a 100 years. So if you like the investment menu why not just requestall of the approvedIRSmethods under 72t. And tell the Executive Director thathe should be more pro-active in his desire to keep these assets under managment not only for the retiree’s lifetime but forthe retiree’s heirs/beneficiariesthat may as yet be unborn.Peace and Hope,Joel L. FrankPension ColumnistThe Chief-Civil Service Leader277 BroadwayNew York, NY2008-11-19 18:12, By: Joel, IP: [24.187.33.126]

L2: 72t is offered by the TSPI suggest also contacting your congresspersons, and asking them to get involved in updating TSP’s website to better explain how to “retire early without penalty”.2008-11-20 12:48, By: dlzallestaxes, IP: [96.245.168.66]

L2: 72t is offered by the TSPOr… Merely use our calculators, choose the annuity or amortization method and complete Section IVof form TSP-70 (http://www.tsp.gov/forms/tsp-70.pdf) by dividing our annual payment by 12 and entering the amount on line 23(c) and don’t check the box to have them compute the payment. You will probably have to complete IRS form 5329, but that shouldn’t be a limiting factor.It really doesn’t sound all that complicated – am I missing something?2008-11-20 13:06, By: Gfw, IP: [98.214.144.242]

L2: 72t is offered by the TSPGordon, you got it! Simply follow the “KISS” principle and it works out quite well.Jim2008-11-20 13:27, By: Jim, IP: [70.167.81.119]

L2: 72t is offered by the TSPSorry to prolong everyone’s misery here. My interpretation from thetwo previous posts seem to indicate that a person in my category can usethe amortization method on TSP Form 70and as far as the TSP and IRS are concerned, it will be a compliant SEPP plan and I will not be subject to the 10% penalty? Thanks to Joel L. Frank. Ironically I sent TSP a letter several days ago touching most of the areas you mentioned. I plan on writing another letter touching on the other remaining issues in your post and suggestions and I will certainly let this board know of its response. I will certainly give the TSP every chance to win me over before I make the switch.2008-11-20 17:47, By: jim, IP: [68.174.27.26]

L2: 72t is offered by the TSPSorry to prolong everyone’s misery here. My interpretation from thetwo previous posts seem to indicate that a person in my category can usethe amortization method on TSP Form 70and as far as the TSP and IRS are concerned, it will be a compliant SEPP plan and I will not be subject to the 10% penalty?Your interpretation is correct. Use the calculators on this site to determine the annual SEPP distribution amount using either the Amortization or Annuitization methods, divide by 12 to get a monthly amount, then … VERY IMPORTANT … round DOWN to an even dollar amount to enter on Form 70, Line 23(c).  As far as making TSP “happy,” don’t worry about that … it’s the IRS you want to make happy.Thanks to Joel L. Frank. Ironically I sent TSP a letter several days ago touching most of the areas you mentioned. I plan on writing another letter touching on the other remaining issues in your post and suggestions and I will certainly let this board know of its response. I will certainly give the TSP every chance to win me over before I make the switch. Thank you for your efforts to effect a change with the powers at TSP.  However, it’s Congress that writes the rules and they are probably not too eager to take on this challenge, given the other “fires” they are fighting these days.  So my advice to you is that you not wait too long for them to make the change so you can use TSP for your SEPP Plan.  By the time they act you may not need to worry about SEPP but be dealing with your annual Required Minimum Distribution due to you attaining age 70 1/2. While you wait for your reply from TSP, you should continue with my last suggestion to find a good financial planner and make plans given your current situation.Jim 2008-11-21 09:06, By: Jim, IP: [70.167.81.119]

L3: 72t is offered by the TSPHi everyone again. I did receive a written email response (I initially received a telephonic response) from the Federal Retirement Thrift Investment Board. A summary of its position is as follows:TSP monthly payments based on a “dollar amount” are not exempt from the early withdrawal penalty; monthly payments based on life expectancy or  “compute my payments” and the TSP life annuities are the only exemptions.The Board uses the life expectancy method which is the same as the required minimum distribution method  and it qualifies as a series of substantially equal payment under Internal Revenue Code section 72(t), but a stream of monthly payments based on a dollar amount does not qualify as a series of substantial equal payments. As a consequence, under IRS rules, a stream of monthly payments based on a dollar amount would be subject to the early withdrawal penalty; a stream of monthly payments based on a dollar amount is not the same as the fixed amortization method and the fixed annuitization method and therefore are subject to the Internal Revenue Code’s early withdrawal penalty.The above came from its legal division.In my telephonic communication with its Education and Training Office, the individual confirmed that that no one can legally use the amortization method or the fixed annuitization methods in withdrawing money out of the TSP without incurring the early withdrawal penalty. This is based on its interpretation of the language Congress provided them with. I have not yet sought professional help on this matter as I now plan on retiring in December but I had planned on using the amortization method with the TSP as some posters here thought I could do. But it now seems to be more of a legal matter? I am certainly not an expert on this matter but it almost seems that the TSP board is using some loop hole to get around the other two withdrawal methods that the 72T permits?Jim2 2009-01-22 02:10, By: Jim, IP: [68.174.18.55]

L2: 72t is offered by the TSPThanks Jim again. In a previous post you wrote,” I do wish they would include a reference to the fact that the Pension Protection Act (PPA) of 2006 created the penalty-free distributions from the DEFINED BENEFIT (PENSION) PORTION of CSRS / FERS for Special Category employees such as you with 20 years of service and age 50.” I couldn’t agree with you more. I would also add words to the effect that in addition to the RMD method, the Amortization and Annuitization methods are also available to the Special Category employees.The above is what I really wish the TSP website would reflect to avoid the confusion that is out there.I will also make sure to round down to an even dollar amount. You and the other posters have been so helpful and I truly appreciate that. I will take up your advice and keep you posted. Thanks again.Jim2 2008-11-21 19:39, By: jim, IP: [68.174.27.26]

L3: 72t is offered by the TSPHi everyone again. I did receive a written email response (I initially received a telephonic response) from the Federal Retirement Thrift Investment Board. A summary of its position is as follows:TSP monthly payments based on a “dollar amount” are not exempt from the early withdrawal penalty; monthly payments based on life expectancy or  “compute my payments” and the TSP life annuities are the only exemptions.The Board uses the life expectancy method which is the same as the required minimum distribution method  and it qualifies as a series of substantially equal payment under Internal Revenue Code section 72(t), but a stream of monthly payments based on a dollar amount does not qualify as a series of substantial equal payments. As a consequence, under IRS rules, a stream of monthly payments based on a dollar amount would be subject to the early withdrawal penalty; a stream of monthly payments based on a dollar amount is not the same as the fixed amortization method and the fixed annuitization method and therefore are subject to the Internal Revenue Code’s early withdrawal penalty.The above came from its legal division.In my telephonic communication with its Education and Training Office, the individual confirmed that that no one can legally use the amortization method or the fixed annuitization methods in withdrawing money out of the TSP without incurring the early withdrawal penalty. This is based on its interpretation of the language Congress provided them with. I have not yet sought professional help on this matter as I now plan on retiring in December but I had planned on using the amortization method with the TSP as some posters here thought I could do. But it now seems to be more of a legal matter? I am certainly not an expert on this matter but it almost seems that the TSP board is using some loop hole to get around the other two withdrawal methods that the 72T permits?Jim2 2009-01-22 02:13, By: jim, IP: [68.174.18.55]

L4: 72t is offered by the TSPJust because someone tells you it came from their legal department doesn’t make it true. They need to do a little research and they will find that a TSP plan, like an IRA, 401(k), etc. does qualify to be implemented as a SEPP. Have them show you where in the IRC that TSP plans are exempt from IRC Section 72(t). But, don’t hold your breath because they won’t be able to give you an answer.  Maybe what they are really saying is that they will only use a code ‘2’  if you do the SEPP as a Minimum distribution.   I’m also guessing that the “Federal Retirement Thrift Investment Board” is some type of government agency or provider. If yes, maybe that just says it all.  You may also want to read the following post from the FederalSoup.com  website. The poster (Ed Zurndorfer, EA, CFP, CLU, ChFC) appears to agree with us and not  the “Federal Retirement Thrift Investment Board” …http://community.federalsoup.com/4/OpenTopic?a=tpc&s=4944011921&f=6984011031&m=4861078251 2009-01-22 16:11, By: Gfw, IP: [216.80.125.206]

L5: 72t is offered by the TSPThanks for your response and for the link.The information I received originated from the General Counsel of the Federal Retirement Thrift  Investment Board. It’s position has been made clear to me. The TSP’s life expectancy formula is the same as the required minimum distribution method which qualifies as a series of substantial equal payments under 72t. It’s position is also that the Fixed Amortization Method and the Fixed Annuitization Method both constitute a stream of monthly payments based on a dollar amount and therefore does not qualify as a series of substantially equal payments. That is their interpretation of the applicable statues regarding withdrawing money directly from the TSP. It is not arguing that the aforementioned methods cannot be applied to IRA’s. That being said, the Federaltimes website supports your argument. I am only informing the public what the Federal Retirement Thrift Investment Board’s legal interpretation is of the 72t and how it applies to those individuals like myself who wish to withdraw money from the plan without suffering the early penalty. 2009-01-23 00:09, By: Jim, IP: [68.174.18.55]

L6: 72t is offered by the TSPThis Investment Board seems to have a problem distinguishing between dollar amount distributions determined arbitrarily from those determined using one of the approved methods outlined in RR 2002-62. Their interpretation of “applicable statutes” is flawed, but they do not provide enough detail for us to determine the reason for their conclusion.To recognize one of the 3 approved methods (RMD) only and declare the other ones invalid because the TSP does not want to provide any support for them makes no sense. There is no requirement that any plan “support” or recognize a 72t plan for it to be acceptable to the IRS. Obviously, it is preferable that a plan does support a valid 72t method, but it is not a necessity.I do not think it is wise to start a 72t plan through the TSP, but that does not mean that the plan could not or would not pass IRS muster. With respect to coding a 1099R, the vast majority of QRP and IRA custodians are now opting not to recognize a plan for coding purposes, thereby causing the taxpayer to complete a 5329, so this is not unique to the TSP. 2009-01-23 05:03, By: Alan S., IP: [24.116.165.60]

L7: 72t is offered by the TSPThanks Alan. In my telephonic conversation with the individual fom the FRTB’s Education and Training department, I had brought up the fact that the professionals at this site  and at others would disagree with it’s position and she did encourage that “they” could contact the FRTB to the reasons why they disagree and that they would be open to hear the argument. She never exactly told me the mechanism for this type of communication but I do have her contact information.I would like to post the message in the event I took things out of context or misinterpreted anything from the G C, but I am not sure if it is the proper thing to do here. It was an email sent to me by the FRTB’s E&T department individual which included the GC’s legal opinion in quotes. What do you think?He does consider IRC section 72(t)(2)(A)(iv) and IRS Notice 2002-62 and indicates the three calculations and provides text book defintions for the required minimum distribution method; the fixed amortization method and the fixed annuitization method. He then ends the message with this
“As can be seen, our life expectancy method is the same as the required minimum distribution method.  However, a stream of monthly dollar payments based on a dollar amount is not the same as any of the three methods.  They are, therefore, subject to the Internal Revenue Code’s early withdrawal penalty.”

  2009-01-23 21:44, By: Jim2, IP: [68.174.18.55]

L8: 72t is offered by the TSPIf the payments are calculated based on the amortization or annuity method using the proper interest rate, age and beginning balance he is just plain wrong. If you want to believe them, please feel free. If you want to follow the advice of the forum, you can also do that.  If you want to pay someone to start contacting them, etc. I’m sure that we can provide you with some names of people that you can contact.  Now it’s up to you, I think the thread has given you the information you requested and answered your question.  2009-01-23 22:45, By: Gfw, IP: [216.80.125.206]

L9: 72t is offered by the TSPActually, I was responding to the issues Alan had raised in his last post. The purpose of my most recent post was to add or clarify my previous post. I do agree with this forum’s advice as I previously indicated. I was attempting to understand intellectually why the FRTIB’s position is so far off base and why it chooses to ignore the mandates of the 72t. I appreciate everyone who posted here. It’s a great forum board. 2009-01-23 23:27, By: Jim2, IP: [68.174.18.55]

L10: 72t is offered by the TSP Thank you all for this informative chain.  I have been dealing for a while with the question of early retirement and TSP withdraw and avoiding the 10% penalty.  In fact, until a few days ago the information I had from TSP and IRS seemed to imply it couldn’t be done.  Then I came across “72(t)” in a magazine article and suddenly I was smarter about what to look for and how to refer to this situation.  This chain and some others filled in a bunch of  blanks and identified the same information voids and conflicts that I’ve been seeing and trying to sort out.
If you kindly would, I would like to present some things I think I understand now, and some questions, perhaps you could provide your takes.  My two main concerns are, of course, avoiding the 10% penalty and not locking myself into some withdrawal formula for life. (That is, I can change it after 59.5). 
(1)  If I use TSP’s Life Expectancy (i.e. RMD) I can still elect to change my contributions using TSPs “one time” rule, to select my own monthly level AFTER 5 years and turning 59.5.   (Same assuming Amortization or Annuitization methods – after the 5/59.5 rule I’m free to select my own monthly amounts; I have NOT locked myself into a formula for my years 60+.)
(2) ?What constitutes a 72(t) “plan or program” acceptable to the IRS?   It appears there are only two elements:  a. Withdraw the correct amount each month   b. Submit form 5329 with my tax return.  In short there is no need to set up a formal program, get pre-approval, or anything of that nature.
(3)  ? Can one choose a “lower” monthly amount?  In other words, suppose I calculate my RMD, but want to take out less each month.  Is the calculated amount (by any of the three methods) an EXACT requirement or just a MAXIMUM ?
(4)  The TSP’s “Life Expectancy” recalculates every year based on the TSP balance and expected life.   If (assuming these are allowed) calculating your own Amortization or Annuitization payments, would you then have to recalculate the amount each year and make sure your TSP withdraws are adjusted annually to meet a varying “proper amount” to qualify for 72(t) ?
(5) Once a method is selected (RMD; Amortization or Annuitization) one is locked into that method from the first payment until the 5/59.5 passes.   After 59.5 all bets are off.

Regards
Rem 2009-06-01 11:43, By: Rem, IP: [216.80.125.206]

L11: 72t is offered by the TSPHope this helps…

Yes. After the later 5-years or age 59.5 you can make a change.
The plan must be based on one of the 3 acceptable methods initially and through the life of the plan.   For the Annuity or Amortization methods it also means using the appropriate interest rate.
The amount is an EXACT amount – take no more and no less.
Recalculation on the Annuity or Amortization methods are allowed if all factors (age, balance and interest rate) are also recalculated. See the sample form.
If the Annuity or Amortization methods are initially used, then there is a one time changes allowed to the Minimum distribution method. If the Minimum distribution method is used, there are no options to make a change.
 2009-06-01 12:25, By: Gfw, IP: [216.80.125.206]

L2: 72t is offered by the TSPThanks Jim again. In a previous post you wrote,” I do wish they would include a reference to the fact that the Pension Protection Act (PPA) of 2006 created the penalty-free distributions from the DEFINED BENEFIT (PENSION) PORTION of CSRS / FERS for Special Category employees such as you with 20 years of service and age 50.” I couldn’t agree with you more. I would also add words to the effect that in addition to the RMD method, the Amortization and Annuitization methods are also available to the Special Category employees.The above is what I really wish the TSP website would reflect to avoid the confusion that is out there.I will also make sure to round down to an even dollar amount. You and the other posters have been so helpful and I truly appreciate that. I will take up your advice and keep you posted. Thanks again.Jim2 2008-11-21 19:39, By: jim, IP: [68.174.27.26]

L13: 72t is offered by the TSP>>Does that mean that there are two options on the yearNo.
If you elect recalculation as part of the plan at the nitial setup, then it is an annual event. Some years your payment may go up and some years it may go down.
Review the sample form where it talks about recalculation.     2009-06-02 09:17, By: Gfw, IP: [216.80.125.206]