TSP

L1: TSP I am a Federal employee under the Thrift Savings Plan (TSP). I am in a special category and will be retiring next month with over 20 years service at age 50. My problem is withdrawing from the TSP without the 10% penalty. I read some previous entries last month about this, but had an additional question. Myplanwould be to withdraw from theTSP account using the periodic fixed monthly amount option. Lets say that I use this 72t.net site to calculate an annual SEPP amountusing the Amortization method. I would thendivide that amount by 12 months and indicate the monthly amount on TSP Form 70 (Withdrawals). I understand that the TSP will not realize that I am using the SEPP method and take its time in processing my paperwork. It wouldprobably be a couple of monthsbefore the payments began. Does it matter if Ireceive say 10 monthly distribution payments from the TSP for the 2009 year, which would fallbelow the calculated SEPP annual amount?If you take out less than the annual calculatedSEPP amount, are you still within the 10% penalty freeIRS guidelines? I know if you go over that you are busted, but how about below?Another question is that I see the 120% Mid Term Interest rates falling like a rock. As I understand it, when you initially set up a SEPP, you are locked into that rate. Any thoughts on where the rates will head early to mid 2009? I am thinking of waiting a few months before submitting paperworkto the TSP to see if the interest rate heads upward.ThanksDave2008-12-16 19:00, By: Dave, IP: [75.164.92.199]
L2: TSPAfter today’s federal reserve move, the rates will drop even further.SEPP 72-T requirements are for ANNUAL DSITRIBUTIONS. It is immaterial of the frequency. However, in the first calendar year you can take either the prorated amount based upon months in the plan, or an entire ANNUAL DISTRIBUTION. It’s your choice. But dealing with a TSP, you are probably safer choosing the monthly approach, and thereby not having to change it next January, and taking a chance that they will foul it up, and bust your plan. Brokerage firms and mutual fund companies are used to dealing with these nuances, but I’m not sure that TSP are.2008-12-16 21:35, By: dlzallestaxes, IP: [96.245.168.66]

L2: TSPHello, Dave:Interest rates are likely to remain low for most, if not all of 2009. The federal government and the Fed are strongly encouraging the economy to grow and rebound from its current slump. I would be surprised if interest rates saw any significant increase in 2009. Doing that would slow an already sluggish economy and they are trying hard to do the exact opposite. In most cases, it is only when the Fed wants to combat inflation or slow an over-heated economy that interest rates are raised. They will likely have to do this in 2010 because of all the money they are pumping into the economy to try to rev it up. There is a lag between doing something in the financial markets and when the effect shows up in the economy. Typically, this is 6-9 months and sometimes aslong as 12 months. I do not see us coming out of recession much before the 2nd or even the 3rd quarter of 2009. Once we do come out, though, inflation from all this stimulus could be significant and perhaps even quite high by historical standards.Ed2008-12-16 22:21, By: Ed_B, IP: [24.20.24.188]

L2: TSPDave,First congratulations on getting out. I got out October 31st with 22.5 at age 50, too. ATC from SAN Tower. The 72T net, here is the best source I have seen for these plans. Check out the entries dated from Joel 11/13 (original entry) also a TSP recipient. Also, please note that having a few discussions with the TSP representatives, they know little or less, and frequently provide wrong information, DO NOT RELY ON THEM AT ALL! Good Luck!2008-12-16 22:48, By: Jay, IP: [207.200.116.135]

L2: TSPDave,I posted a reply to this on Ed Slott’s site, so will not repeat it all here. In a nutshell, I agree with Jay. Use an IRA for better control and support of your plan. You can use the TSP for distributions that MAY comply if everything is perfect, but the distribution options there do not really provide you with the flexibility you will need over the years. Doing a direct rollover may also enable you to use an earlier month with a higher rate because there is much less start up time with a firm like Vanguard than with the TSP.2008-12-17 11:16, By: Alan S., IP: [24.116.165.60]

L2: TSPThanks for all of your responses ref my TSP retirement questions. I have contacted Vanguard and opened an IRA that I will roll over the TSP into. My calls to the TSP have been less than informative and the IRS not much better. So, I will retire, then do the roll over to Vanguard, then set up the SEPP. Hopefully the Mid Term 120% rate inMarch or April will not be in negativenumbers! May need to wait until 2010 to start the SEPP withdrawal.Thanks again. I really like the input that people provide to this site. Will recommend it to some of myco-workerswho will also be retiring from the government in the near furture under similar circumstances.Dave2008-12-17 11:45, By: Dave, IP: [75.164.92.199]

L2: TSPDave:One final comment about Vanguard. They are an excellent IRA custodian but they will not admit that any of their customers have a SEPP… even AFTER we fill out the 8 page SEPP plan form and they start sending us substantially equal payments from our Vanguard IRAs. You will need to file a form 5329 with the IRS to claim your exemption from the 10% early withdrawal tax on pre-age 59.5 IRA distributions. Not a big deal but definitely not something that you want to overlook. I did and had to file an amended tax return for 2005. The IRS people with whom I dealt were knowledgeable and helpful, so there were no financial repercussions resulting from my unintended error. Still, I can’t help but feel that the lower your profile with the IRS, the better.Ed2008-12-17 13:44, By: Ed_B, IP: [24.20.24.188]