Proration question, plus more.
L1: Proration question, plus more.
1. When prorating a first year, can you take the full amount, an amount equal the monthly payments for the number of months you were retired, or monthly payments for only the months left in the year, at the time of requesting the withdrawal? Or any of the above?
350k 7/66 dob beneficiary 6/68 dob.
2. Can any of the life expectancy tables be used, regardless of beneficiary?
3. The big question…for me anyway. I would like to get a full year payment now, then a fixed monthly amount until 59 1/2. The problem is, the Thrift Savings wants you to request a percentage of your account balance, rather than a specific dollar amount for the lump sum for the first year. If I do that, it will be next to impossible to request the exact same amount in monthly payments for the subsequent years? What to do?
2018-10-12 01:46, By: db, IP: [126.96.36.199]
L2: Proration question, plus more.
Re #3 – Transfer your account to a brokerage firm or other financial institution that understands SEPP 72-T plans. Your Thhrift obviously does not. Don’t bother trying to educate them. You will waste weeks or months with their compliance department, and then they will decline to do it correctly or at all.
Re # 1 — The number of months that you were retired is irrelevant. There are only 2 options — 1) Take the full annual dsitribution, which is what you wand to do anyway, or 2) Prorate the # of months remaining from the date of the first distribution divided by 12, times the annual distribution you calculate.
Re # 2 — Use your DOB/age.
2018-10-12 05:17, By: dlzallestaxes, IP: [188.8.131.52]
L3: Proration question, plus more.
Regarding the tables. I read so many times that you can use any table you chose, that I guess I wonder what the point of them is. I do understand the basic idea of the differences. I just need to use the single life expectancy for higher dollar amount. So I’m just trying to make sure there’s no requirement to use a specific one. As far as the thrift savings account, I really don’t want to move out if it until I complete the 72t time period (59 1/2 in my case) if at all.
2018-10-12 06:05, By: db, IP: [184.108.40.206]
L4: Proration question, plus more.
The Thrift plan process does not appear to be compatible with the SEPP 72-T regulations. From your posting, they appear to want you to have a monthly distribution, and will not allow you to have a lump sum of the annual distribution for 2018.
I do not understand why you insist on staying with the Thrift, but that is your decision. Which is more important to you, getting the annual distribution in 2018 vs. 2 or 3 months’ worth, or staying with the Thrift.
You probably could move your account to another firm NOW, take your annual distribution in 2018, and monthly thru Oct 2019, and then in Nov 2019 move your account back to the Thrift. (I believe that you can make only 1 transfer within any 365 day period.)
2018-10-12 15:34, By: dlzallestaxes, IP: [220.127.116.11]
L5: Proration question, plus more.
You couldn’t transfer a 72t plan from an IRA to a DC plan or vice versa without busting the plan. The TSP is treated as a DC plan. In addition, we generally do not recommend starting a 72t plan using employer plans because the lack of control increases the risk of busting the plan. The TSP has always had a number of restrictive distribution rules, and although changes have been approved, they will not be implemented for awhile.
So, that appears to leave two options:
1) Do a direct rollover of the TSP to an IRA ASAP, then start the 72t plan from the IRA, where you will be able to take a full annual distribution for 2018.
2) If you still want to stay with the TSP, you could start your plan in January and I believe you could take 12 monthly installments under present TSP rules, but they would have to add up to your annual 72t calculation. Of course, that means no distribution until January and no lump sum, although you might ask the TSP if you can take a lump sum in January for 2019. I don’t know their schedule for implementing the distribution option changes, but simply the fact that they are changing them after your plan has begun carries it’s own risks.
3) Therefore, I recommend option 1. With low cost investment options at firms like Schwab, Fidelity and Vanguard, you can come very close to the low ERs of the TSP, have more investment options, and more control over your plan. With a plan term of close to 10 years, you want to keep things as simple as possible and not attract IRS attention.
4) If and when you begin monthly payments, be sure to set the payment date toward the middle of each month, NOT near the start of end of the month, because there has been cases where the Dec payment is not made on time or the January payment is made early because of the New Year holiday. With payments in mid month, if something goes wrong you have time to get on the phone and correct any errors.
2018-10-12 16:29, By: Alan S, IP: [18.104.22.168]
L6: Proration question, plus more.
Regarding taking lump sum payment for the first year. It can be accomplished by using 2 different forms. Yes, the Thrift Savings people are poorly trained, and have a lot of problems. However, in my experience, there are problems in just about any business I’ve ever dealt with, in any capacity, for any reason. Also, the payment date can be loosly set by when I submit the forms.
If anyone can clarify my rights to use any of the 3 life expectancy charts that I choose. In other words, does anything dictate which one I choose? The way I’m reading it, I’m allowed to use whichever one I want, regardless of beneficiary or anything. Is that correct? Thanks.
BTW I have another smaller IRA for back up. Plus, other cash to invest appropriately. So please don’t think I’m trying to brush off all of you brokers out there. I just want to keep this accout. One reason is because I want to keep things simple, and I believe it will be, once it’s set up right.
2018-10-16 19:47, By: db, IP: [22.214.171.124]
L7: Proration question, plus more.
You can use any of the IRS approved charts as outlined in IRS Pub 590.
With that said, why would you want to use any chart other than the single life expectancy table?
2018-10-16 20:02, By: Gfw, IP: [126.96.36.199]
L8: Proration question, plus more.
I definitely would not. Though the actual reason the charts exist is something to consider…if you could afford to. I just wanted to make sure the was no requirement to include a spouse in the calculation. Which would be a reason to use the joint table. There’s just such a lack of information on this subject. Then there’s the wrong information that makes it hard to believe the right infirinform when you hear (or read it). I went straight to the IRS code for the info, but I needed a place like this to help clarify. AND I so appreciate that there are a few people willing to share info. Thanks.
2018-10-16 20:26, By: db, IP: [188.8.131.52]
L8: Proration question, plus more.
Re your comment — I do not think that any respondent on this website is a broker. Most of us are tax or financial planning professionals who do this as a service to pee, and not because we are looking for any business.
2018-10-16 20:30, By: dlzallestaxes, IP: [184.108.40.206]
L9: Proration question, plus more.
Note that even if you were to use the joint and last survivor table (II) with a beneficiary 40 years older than you, the generated distribution would not be higher than the single life table generates. Not to mention the implications of naming your 95 year old uncle as your beneficiary!
2018-10-17 04:17, By: Alan S, IP: [220.127.116.11]
L10: Proration question, plus more.
I don’t blame you for not wanting to get out of the TSP. I too am a TSP participant and from what I’ve discovered through much research is that the fees we are charged are among the lowest of any investment plans out there. I am very interested to hear how your SEPP plan worked out for you. I intend to set up a SEPP plan using my TSP account, beginning the first distribution in January 2020. The new withdrawal rules are supposed to be implemented and become effective by September 2019. I just may luck out and have a few more withdrawaloptions to allow me to get my plan started more smoothly than the options available now. I’m in the early stages of researching the 72t rules. I’m hoping to have my mind wrapped around it by the end of next year. Good luck!!
2018-12-09 16:04, By: TF, IP: [18.104.22.168]
L11: Proration question, plus more.
I don’t know why it should take the TSP 2 years to program and test new distribution options that brokerages routinely offer. Most likely, the TSP is working with antiquated processing systems (like the IRS).
As of 9/2019 the TSP promises to offer monthly, quarterly, or annual installment options. They have not said whether these installments need to be rounded to a whole dollar or not. In recent years the IRS not been busting SEPPs due to rounding issues, but you are actually supposed to distribute the exact amount of your calculation. If your calculation divided by 12 comes out to say $x.53, rounded to the nearest dollar will make your annual distribution up to $6 too high or too low. To mitigate the risk, you could tweak the interest rate fractionally down from the max using the calculator on this site so that rounding would be minimized. Or you could just opt for fewer installments which will also reduce rounding issues.
The TSP will still be less nimble than your better brokerage IRA custodian in correcting errors. For example, come December you should recheck everything to make sure your distributions are exactly correct. If you discover an error, it is not clear whether you would be able to correct it or not, since even though the TSP will have more options, they still will probably not have flexibility beyond those options. Accordingly, you will probably have just one chance (when setting up the distributions) to get it right including your withholding amount. If you elect installment payments, stay away from the first or last 5 days of the month. The 8th to the 15th are best distribution dates, since it avoids year end issues with weekends and holidays and pays early enough for you to attempt to correct any errors, particularly in December when you are dealing with a year end deadline for any corrections, if you could even make these corrections.
So in conclusion, using the TSP or any qualified plan for SEPPs is risky, even given the expanded options.
2018-12-09 17:04, By: Alan S, IP: [22.214.171.124]
L12: Proration question, plus more.
As usual, Alan’s response is very comprehensive.
One suggestion that might work, or not. See if you can take quarterly distributions in mid-Jan, Apr, July, & Oct. Make each payment $ 100 less than required. And then, if TSP will allow it, take the balance of the annual amount in mid-Nov, so you will have time to hopefully correct it in time for a Dec adjustment, if necessary if they messed up.
2018-12-09 18:15, By: dlzallestaxes, IP: [126.96.36.199]