TSP to 72(t)
L1: TSP to 72(t)Can a 72t be set up while still in the Federal Goverments TSP (Thrift Savings Program). TSP only offers the minimum distribution method. You can set up monthly payments not based on life expectancy. The question is can you do the calculations for the amoritization method and request that amount as monthly payments from TSP and get the IRS to recognized it? The TSP would code it as a premature withdrawal I think. Has anyone done that? Also, what steps would I need to take to set up a 72(t) after having the TSP transfer it to an IRA?Thanks2008-04-05 10:33, By: Three Story, IP: [188.8.131.52]
L2: TSP to 72(t)Hello, 3Story:
I am not familiar with the federal TSP so can”t offer any advice there. Others on this web site will likely have the info you seek.
As to the steps you need to take to set up a SEPP on an IRA, those will be the same steps that pretty much all of us with SEPPs have done. A real good place to start with this is to go to Vanguard”s web site and download their SEPP brochure. It”s an Adobe Acrobat format document, so you can read it on your PC, print it off, or both. This brochure is well written and easy to follow. It describes SEPP and what you need to do to set one up. It also goes through all 3 of the IRS approved calculation methods. Once you have the SEPP method you want, calculate your annual SEPP withdrawal amount. Then, use the SEPP calculator on this web site and the same info you used for the SEPP calculation. Doing this should result in a 2nd number that is nearly identicalto the amount you calculated from the brochure. Getting these results will give you confidence that the number is accurate. Expect a very small difference that is usually less than $1. This is probably due to rounding / different number of decimal places used and is of no consequence.
Once you have your numbers and know where you want your IRA and SEPP to be, contact that custodian for a SEPP setup form. Fill that out and send it in. Once they have a traditionalIRA opened for you, transfer your TSP money into it via a direct transfer. It”s OK to receive a check from your former employer”s plan for this as long as the check is made out to your IRA custodian and not to you. On the Pay To: line it should say something like:
Pay to: Vanguard Fiduciary Trust, FBO Mr. ThreeStory
where the FBO is shorthand for “For Benefit Of”
You shouldthoroughly document everything. If you have a scanner on your PC, use it to copy all completed forms, any check you receive, and anything else that you use in your SEPP setup process. Keep all of these things in a large 3-ring binder and organize the info by date and also by type so that particular pieces of info are easier to find. If the IRS ever wants to know what you have done with setting up your SEPP, this binder will contain everything you need to show your work. Keep an electronic file of this info as well with a backup to CD or flash drive. The backup should be kept in a fire resistant safe or at another location so that a fire in one place will not wipe out this “must have” data.
Finally, if your IRA custodian does not code your annual 1099-R with a “2” in box 7, you will need to file a form 5329 with your annual tax filing. This form will allow you to claim the 72t exception to the 10% early withdrawal penalty tax and also helps document that you have a SEPP and when it started.
Ed2008-04-05 17:07, By: Ed_B, IP: [184.108.40.206]
L2: TSP to 72(t)A real good place to start with this is to go to Vanguard”s web site and download their SEPP brochure.Can you please post a link to that brochure? I have looked and looked for it on their site and cannot find it anywhere. Thanks.2008-04-06 04:44, By: Mikex, IP: [220.127.116.11]
L2: TSP to 72(t)Link to brochure: (unless it is too long to post)
https://personal.vanguard.com/us/LiteratureRequest?FW_Activity=ViewOnlineActivity&litID=2210024901&FW_Event=start&view_mode=web&usage_cat2=MANGMTIR&viewLitID=22100249012008-04-06 11:52, By: Alan S., IP: [18.104.22.168]
L2: TSP to 72(t)That link worked just fine, Alan. Thanks for posting it. That is the same brochure that I got in 2004 when I was first considering a SEPP. I”m sure that other custodians have similar literature on their web sites but I mentioned this one because I was familiar with it.
Ed2008-04-06 16:10, By: Ed_B, IP: [22.214.171.124]
L2: TSP to 72(t)Thanks, Ed and Alan. When I called Voyager Select services a few weeks back to touch bases with them about my upcoming distribution, the rep didn”t even mention a brochure. 2008-04-06 23:20, By: Eureka, IP: [126.96.36.199]
L2: TSP to 72(t)Hello, Eureka:
Glad to help when I can. Sorry that the Vanguard rep did not know about this brochure. One would expect them to know such things. Perhaps this particular person hasn”t been on the job all that long?
I checked their web site did a search for SEPP. It only showed 3 hits on this search and one of them was SEPP as a glossary term. I”m surprised that this brochure was not found via this search. It seems to me that this was the way I found it originally.
Ed2008-04-07 15:48, By: Ed_B, IP: [188.8.131.52]
L2: TSP to 72(t)Hello,I am a Financial Planner and just so happen to be working with a client right now utilizing a distribution from the TSP. If you have any questions I would be happy to offer any help I can.2008-04-08 06:20, By: FloridaAdvisor, IP: [184.108.40.206]
L2: TSP to 72(t)Some advice would be great. I”m thinking about leaving my funds in TSP and requesting monthly payments using amoritization method. TSP does not offer this option, so I would do the calculation. I know I would need to file an IRS for 5329 to claim the exemption from 10% penalty. Do you think this is a valid option? or would a transfer to an IRA be better. 2008-04-29 05:02, By: Three Stroy, IP: [220.127.116.11]