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L1: TSPI am a Federal law Enforcement Officer who is eligible to retire early and will need to set up a 72T with my Thrift Savings Account (TSP) and Icopied this question and answer from Federal Times and was wondering if anyone has any additional comments on this site about leaving the money in the TSP and setting up a SEPP while using the TSP”s option of monthly withdrawals for a specific dollar amount?
72t distributionQuestion: I am a federal law enforcement officer under 6(c) coverage. I would like to set up a 72t distribution at age 50, when I am eligible to retire and will retire. Could I do this myself by taking the amount allowed by IRS regulations (monthly limit set up by IRS) and ask Thrift Savings Plan to distribute a monthly amount, which is allowed by TSP, or do I need to roll it over to an IRA? I want to keep my money in the TSP due to its low cost and excellent returns. I understand that I will have to fill out form 5329 at the end of each year until age 59 and a half. Could I set up the 72t myself? Answer: You may set up and administer the SEPP (72t) yourself using the TSP or an IRA account. In fact, that’s the way it’s done. All that the IRS cares about is that exactly the allowed amount is taken from the account each year. You can accomplish this using any payment frequency and method you choose. Be advised, however, that the rules and calculations that apply under 72t are complex and strict, and that violating a rule can result in significant penalties. I suggest that you seek qualified guidance before proceeding.

— Mike Miles / Ask a question2007-07-24 14:52, By: Tony, IP: [207.255.95.42]

L2: TSPGranted, the TSP has extremely low cost expense factors, however after reviewing their website, it appears that they do not specifically support 72t distributions. You would have to manipulate your plan around the lack of flexibility the TSP has in making last minute adjustments to save your plan from a bust. The 5329 in itself is not a problem, as most custodians are now forcing the taxpayer to file the form to claim the exception.
If you have enough assets in your TSP to only take a partial distribution in an IRA transfer, that would enable you to set up the plan with the IRA and still have other assets remaining in the TSP, that could become an emergency fund for you, or because you are making a decade long committent, serve as a basis for a second 72t plan a few years down the road if your costs of living increase etc.
My concern with calculating your 72t payment and then simply asking the TSP to distribute it with monthly or quarterly installments is that if there is anything less than perfect communication between you and the plan, you will not be able to make last minute adjustments to save you from busting the plan. With an IRA, you can take a supplemental distribution in December or rollback excess amounts in a couple days in order to make sure the 1099R at year end shows the exact amount needed to satisfy plan requirements.
Consider Vanguard, Fidelity or Schwab for your IRA if you want nearly unlimited investment choices. Vanguard and Fidelity have index funds around 10 basis points in expenses, and I think the TSP is around 7. 3 basis points is close enough to call it even. Schwab has higher expenses, but works well with 72t accounts and even still codes the 1099R with the exception code, meaning no 5329 needed.
Jim, who posts here I believe works hands on with TSP accounts, so he may have something to say about the prospects of crafting a plan directly from the TSP.2007-07-24 19:01, By: Alan S., IP: [24.116.66.98]

L2: TSPI think that you just have to make sure that the TSP can make distributions that will exactly equal the amounts calculated under the IRS SEPP 72-T provisions. This may work if you are taking a prorated distribution in the first year on a monthly basis, but probably would not work if you wanted to take the annual total in the first partial year, unless your TSP allowed you to take an initial lump sum amount for the “missed months” in the first year, and then start your monthly distributions.2007-07-24 21:16, By: dlzallestaxes, IP: [151.197.61.202]

L2: TSPAlan and Tony …
I”m working on a response. This one will take some more research for a good answer.
Jim2007-07-27 06:47, By: Jim, IP: [24.252.195.14]