Thrift Savings Plan (TSP) monthly mayments
L1: Thrift Savings Plan (TSP) monthly maymentsI retired from the Federal Govt in 2007 at the age of57and beginning Jan 2008 I took a partial withdrawal frm my TSP account and began receiving a “series of monthly payments”of $500.Per the TSP Withdrawal handbook there are 3 options uponseparation from Federal Service and I did a “mixed” withdrawal. Yearly I receive a letter from the TSP asking me if I want to change the monthly amount (increase or decrease). I did not purchase an annuity prior to my retirement as Iwasn’t sure what do do with the balance in my account (approx 100k). Questions:
1. Are these paymentsconsidered a SEPP? If so,if I change the amount to $1000 starting next year, will that be considered a change and have to pay a 10% penalty on the amounts I received for 2008-2010?
2.I’m not sure if Ifully understand the72t rules, do I fall in that category?
IRS Pub 590 that the TSP handbook referred me to is very vague on this subject. I was considering transferring my balance toChase as Ino longer want to manage the funds, between the different investment options that the TSP have.
Thanks2010-11-11 02:01, By: tony, IP: [184.108.40.206]
L2: Thrift Savings Plan (TSP) monthly maymentsGood morning Tony:
Since you “retired and separated from service at or after age 55,” 57 in your case, and since your funds are still in the TSP, you are not under SEPP Plan rules. You may withdraw any amount from TSP and it is not a “penalty” withdrawal.IF you transfer from TSP to an IRA, then you fall under the IRA rules which impose the 10% penalty on withdrawals before your actual age 59 1/2.
Based on your statement that you were 57 in 2007, I suspect you are at or near age 59 1/2 which will put you beyond the penalty withdrawal threshold. Stick with TSP until you do reach age 59 1/2. Then you will be free to transfer to an IRA and can set up withdrawals of your choosing and only pay the “Ordinary Taxes” but no penalty.
The three options you refer to is Part IV, Item 23 a, b and c on Form TSP-70. 23a, “Life Annuity,” is probably the worst option. If you select this option you forever give up control of your funds in exchange for a stream of income. If you die early then your family doesn’t receive the full benefit of your account.
You chose the partial distribution under Item 23b and the $500 monthly income specified in Item 23c. Annually in January you may change the monthly amount specified in Item 23c and that is why you are receiving the letter. Depending on your monthly financial needs, now is the time to make any necessary changes.
If your age is 59 1/2 or older, you may transfer up to 100% of your TSP account balance to an IRA and begin distributions as you wish. The IRA is more flexible and, depending on the investment plan vehicle chosen, you may change monthly distributions “at will” in addition to taking periodic extra distributions when you have unexpected, extra money needs.
If you choose to invest in a “deferred annuity” and take periodice distributions, youmay have some restrictions placed on your distributions per the contract terms. A “deferred annuity” is not the same as the “Life Annuity” specified in the TSP plan. Have your financial advisor explain this in more detail. Your situation may indicate using the “deferred annuity” as very beneficial to you, so find out all of the details before either accepting or rejecting this option.
I hope this helps.
Jim2010-11-11 15:22, By: Jim, IP: [220.127.116.11]
L3: Thrift Savings Plan (TSP) monthly maymentsJim,
Thanks for the reply and information. I will look further into what you stated above, and now that I am 59 and 10/12 (;-)) I will consider rolling it over into an IRA..
Tony2010-11-20 06:09, By: Tony, IP: [18.104.22.168]