TSP - which way to go?

[RESORT2ME Senior Member Find all posts View Profile Close RESORT2ME]

I'm just starting to read about Thrift Savings Plan withdrawal options.
If you understand the TSP withdrawal rules, maybe you can help me decide which move to make?

We have G fund only. This is my (age 70 1/2) year.

The way I understand, I can keep the TSP, but must start a drawdown this year and pay tax on that withdrawal... OR ... have them invest my TSP into an annuity.

It is likely that one of us will live 15 more years. I'm 71 on 3 March 2009. Caroll will be 68 in Feb.

Any TSP participant opinions?

Robert

[Marti Super Moderator Find all posts View Profile Close Marti]

Tsp: Q and A


How long can I leave my money in the TSP?

If you do not want to withdraw your account when you leave Federal service, you can leave your entire account balance in the TSP. However, you must withdraw your entire balance (or begin receiving monthly payments from the TSP or from the TSP annuity vendor) by April 1 of the year following the year you turn 70½ (or following the year you separate, if you are already over age 70½ when you leave Federal service).

If you do not make a withdrawal by the required deadline, your TSP account must be paid to you in the form of an annuity, as required by law. If you do not provide the necessary information for the TSP to purchase an annuity for you (and your spouse, if applicable), or if you cannot be located, your account will be declared abandoned. You may later reclaim your account and choose a withdrawal option; however, you will receive no earnings from the date your account was declared abandoned.

[Marti Super Moderator Find all posts View Profile Close Marti]

Tsp: Q & A


What are "required minimum distributions?"

If you have separated from service, the IRS requires that you receive a certain portion of your account balance beginning in the year in which you become 70½. This portion, known as a "required minimum distribution," is based on your life expectancy. If you do not make a full withdrawal or begin monthly payments by the year in which you become 70½, the TSP must send you the required distribution before April 1 of the following year. When you choose a withdrawal option, the TSP will determine whether you are required to have a portion of your account paid directly to you as a minimum distribution. The TSP will notify you and make any required minimum distribution payments to you as necessary.

The minimum distribution requirement applies only to participants who have separated from
Federal service. It does not apply to active employees, regardless of their age.

To learn more about the minimum distribution requirement, read the tax notice
"Important Tax Information About Your TSP Withdrawal and Required Minimum Distributions."

http://www.tsp.gov/forms/oc97-17.pdf

[Marti Super Moderator Find all posts View Profile Close Marti]

TSP - Thrift Saving Plan - G Fund


What is a G Fund

The G-Fund is the safest investment option in the TSP family of funds.
An investment in the G-Fund is very similar to investing in Certificates of Deposits (CDs) at your local bank or having your money in a money market account. The most important thing to know about the G-Fund is it invests
in short term government bonds. Therefore, your investment, both principal and interest in this fund is guaranteed by the U.S. Government.

This is the only TSP fund with a guarantee that you will not lose money.

[RESORT2ME Senior Member Find all posts View Profile Close RESORT2ME]

[quote=Marti;287039]
How long can I leave my money in the TSP?

If you do not want to withdraw your account when you leave Federal service, you can leave your entire account balance in the TSP. However, you must withdraw your entire balance (or begin receiving monthly payments from the TSP or from the TSP annuity vendor) by April 1 of the year following the year you turn 70½ (or following the year you separate, if you are already over age 70½ when you leave Federal service).

... quote]

So, I can let the G fund ride but must start withdrawing monthly until there's nothing left. I figure that will last about 15 years. If we both should die, the remainder will go to the children.

If the annuity route is chosen, the monthly payment goes on till one or both die, how many months depends on the options taken. When both are dead, the payments stop. Any remaining funds, they keep.

Do you think I have that correct? (I know there are some variables)

I hate the thought that they keep the rest of the annuity when we die, especially if we pass soon.

[Gary1998 Member Find all posts View Profile Close Gary1998]

Robert,

Your turning 71 in March, 2009 means you turned 70 1/2 in 2008. IRS rules require that you take, at least, the Minimum Required Distribution from your TSP plan in the year in which you turn 70 1/2 (2008). You have until April, 2009 to make this 2008 withdrawal. You certainly want to take this withdrawal to avoid having the entire TSP amount converted to an annuity as Marti explained or to avoid other IRS penalties.

I am a retired Fed too but upon my retirement, I elected to roll my TSP into an IRA so that I could direct it myself. I would recommend you do the same thing and avoid the annuity route.

Sorry I'm not more familiar with the TSP any more. I retired 11 years ago so I am no longer familiar with TSP rules.

Gary

[Marti Super Moderator Find all posts View Profile Close Marti]

TSP 3 Designation of Beneficiary


Q: What happens to my TSP account balance if I die?

If you die before your TSP account is completely withdrawn,
the balance in your account will be distributed according to
your most recent Designation of Beneficiary (Form TSP-3),
if you completed one
(See "How do I designate beneficiaries for my TSP account?").
If you did not file Form TSP-3, your account will be distributed
according to the order of precedence required by law.

In order for your account balance to be distributed after your death,
Form TSP-17, Information Relating to Deceased Participant, must be
submitted to the TSP along with a copy of your certified death certificate.

[tonyg Goomba & Super Moderator Find all posts View Profile Close tonyg]

Rolling it into an IRA will not get you by the withdrawal rules as regular IRAs have similar withdrawal rules at the same ages.

[RESORT2ME Senior Member Find all posts View Profile Close RESORT2ME]

If I roll it into an IRA, do I not incur taxes for doing so? I realise tax must be paid on any withdrawals.

What are the IRA advantages compared to leaving the G funds with TSP?
___________
Robert

[RESORT2ME Senior Member Find all posts View Profile Close RESORT2ME]

Robert,

... You have until April, 2009 to make this 2008 withdrawal. You certainly want to take this withdrawal to avoid having the entire TSP amount converted to an annuity as Marti explained or to avoid other IRS penalties.

I am a retired Fed too but upon my retirement, I elected to roll my TSP into an IRA so that I could direct it myself. I would recommend you do the same thing and avoid the annuity route. ...

Gary

Gary, how do I go about rolling the TSP into an IRA?
Do I pay taxes on the whole or only as I make withdrawals from the IRA?

The more I read, the more confusing it becomes.

[Gary1998 Member Find all posts View Profile Close Gary1998]

Robert, I sent you a PM......Gary

[RESORT2ME Senior Member Find all posts View Profile Close RESORT2ME]

Robert, I sent you a PM......Gary

Got it.
Thanks

[RESORT2ME Senior Member Find all posts View Profile Close RESORT2ME]

I haven’t figured out how I can roll my TSP into an IRA without paying 20% tax, up front. I don't have much in there and want to only pay 10% as I pull it out.

I’m trying to decide which of these two ways to go on drawing down our TSP ACCOUNT: Afraid it will run out too soon, at a time when we will need it most. Cost of living will not be kind.

1) Keep our TSP account balance of $37,000 in the G fund and draw monthly payments till it runs out or we both die. TSP keeps any remainder.
Might draw as little as $228 monthly to stretch it out for 12 years or more. The TSP has never been below the 4% interest rate and is as secure as our government.

2) Allow TSP to roll it into a joint annuity with a 100% Survivor Benefit and a Cash Refund to beneficiary. By this, we draw monthly payments till we both die and any remainder is paid to our children.
This too might draw $228 monthly. The annuity interest rate runs the gamete, as our economy. Sounds great in theory, but no security that I can see. It could dwindle to nothing very shortly.

We are 70 and 67 now. Our life expectancy is another 20 years.

Any advice on these two... or maybe you know a better thing to do?
I don't like to gamble the 'bread money'.

Robert

[Marti Super Moderator Find all posts View Profile Close Marti]

New Rule for 2009


Required Minimum Distributions From IRAs

Retirees with tax-deferred retirement funds such as 401(k)s and IRAs are required to
take minimum amounts out of those funds once they reach age 70 ½ . The government requires this because those amounts taken out are taxable on withdrawal, and it ensures the IRS gets something from retirees. Because of the stock market troubles, RMDs are suspended for 2009.

That doesn't help when preparing 2008 taxes,
but is important to note for planning for 2009.