Tsp Installment Payments Option
The substantially equal payments option now called installment payments falls between the lump sum and annuity options in terms of flexibility, and it has some features of both. For example, like the lump sum, but unlike the annuity, this option allows payments to be transferred into an IRA or other qualified retirement plan . But like the annuity, and unlike the lump sum, this option provides a string of payments that come automatically and dont present the opportunityor challengeof managing a large sum of money all at once.
With installment payments:
You may elect quarterly or annual payments in addition to monthly payments and change that election at any time
-Change the amount at any time rather than just once a year
-Elect partial lump-sum withdrawals even while taking installment payments and
-You can stop the installment payments to elect an annuity with the remaining balance rather than being limited to only a lump-sum withdrawal.
Investment gains or losses while the payments are being made will affect them. Gains will increase the number of payments if you selected a fixed dollar amount and will increase the payments you otherwise would receive if you chose a withdrawal based on a fixed number of payments or life expectancy. Similarly, losses will reduce the number of payments you receive if you chose a fixed dollar amount and will reduce the size of the payments if you chose a life expectancy-based payout.
Is A Tsp The Same Thing As A 401
Not exactly, though they are structured similarly and have the same contribution limits. A TSP is what the federal government offers instead of a 401, which is the type of plan offered by private employers. It is possible to have both if you have worked for both a government and a private employer. However, the total contribution to these retirement plans cannot exceed the annual contribution limits set by the Internal Revenue Code.
What Are Your Options
The most obvious option is to leave your TSP alone. Don’t touch it, no matter how tempting it may be. While that isn’t always easy, it is the best financial advice.
One nice thing about the TSP is that once you’re in, you can stay in, even after you leave the service. You can also contribute money from other qualifying retirement plans and your own IRAs into your TSP account. Conversely, if you get a job that has a good 401 plan, you can roll your TSP money into that plan. If you get a government job, you can keep putting money into your TSP.
A 401 plan is almost the same thing as the TSP it’s just run by a civilian company. The 401 refers to the paragraph of the IRS tax law that authorized the program.
Transferring money from one retirement savings plan to another is almost always tax-free. It usually involves a bit of work filling out forms and talking to finance people who may not be familiar with the TSP, but all the information you need can be found on the TSP website.
Normally, you can only transfer your Roth TSP into a Roth 401, or your Roth 401 into a Roth TSP. The same goes for traditional TSP and 401 plans. There are ways to get around this. To be safe, talk to an accountant. Otherwise, you may end up owing a lot of taxes.
You can also transfer Individual Retirement Accounts and SEP IRAs into the TSP and keep the tax advantages.
Don’t Miss: What Is Adp Retirement Services
Which Thrift Savings Plan Should You Choose
Here are some things to consider when choosing a plan:
- Your current and future tax rate Since youll have to pay taxes eventually, it all comes down to whether you think youll be better off paying your taxes now or later. Think about your current income level and tax rate and what you expect they might be when you retire. For example, if youre in a low-income tax bracket now, but think your tax rate could be higher in retirement, the Roth TSP may be a good option.
- Your career path If youre in the early years of your career and you expect your future income to increase considerably, paying the taxes now on your TSP contributions might make sense.
- Government match The Department of Defense will contribute 1 percent of your basic pay to your Thrift Savings Plan after 60 days of entering service and will begin to match your contributions , at the start of your third year of service.
- Notable The governments matching contributions can only be made into a traditional TSP. You can have both a traditional and Roth TSP at the same time, and both contributions will be added together to determine the governments total match. Even if you only contribute to a Roth TSP, you will still have both types of accounts.
Remember, this isnt a one-way-or-the-other decision. You can contribute to both your Roth and traditional Thrift Savings Plan.
Leaving The Military: Cash Out Your Tsp Or Keep It
You have been faithfully contributing to the Thrift Savings Plan since you joined the military. Now, you are counting the days until you get out and have a big chunk of money sitting in your TSP account. What should you do with it?
When you get out of the military and transition to civilian life, you will almost certainly be hit with a ton of unexpected expenses, ranging from the cost of new clothes to medical insurance. Itâs really tempting to cash out your TSP account to pay for them. But that is almost always the worst thing you can do.
Most experts agree that taking money out of your TSP retirement account before you turn 59Â½, the normal minimum distribution age, isnât smart.
You May Like: Can You Get A Mortgage After Retirement
You Dont Have A Clear Strategy For Your Tsp
Often, when federal employees enroll in the TSP, its done without thinking about how the TSP will complement other retirement accounts and retirement income sources, such as Social Security benefits, pensions, IRAs, 401s, 403s, Deferred Comp, non-qualified accounts, bank accounts, etc.
Enrolling in the TSP is great, but dont just enroll in it and settle for the default settings. Meet with a retirement financial planner and qualified tax professional to see what forward-looking tax planning and advanced retirement income planning options might be in your best interests.
Rather than just enrolling in the TSP and turning off your brain, find qualified professionals even if it’s just for one meeting, because you dont know what you dont know.
They can help you evaluate your TSP choices within the context of a holistic, tailored retirement plan. How much will you need to have saved for a comfortable retirement? Will your TSP fund choices, and your contribution percentage, get you to that goal?
Look for independent financial professionals who are knowledgeable in TSPs, and work together to build a retirement financial plan thats based upon your specific needs, wants, and goals.
Kim Franke-Folstad contributed to this article.
Appearances on Kiplinger.com were obtained through a paid PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
What Should I Do With My Tsp After Retirement
When you have a question in your mind about what should I do with my TSP when I retire, it is better for you to consider investing your TSP by having an investment in Physical gold. It has a more stable value which is well known for the retained value over the years. You also need to know another fact about a gold investment which is well known for the safest way to have various kinds of a retirement portfolio. By having a gold investment, you will be able to have good protection for your assets since there is lots of inflation and the unstable condition of the stock market.
Option No 3 Transfer To Ira
The third option is to transfer funds from your TSP to the IRA. It is possible to make a partial or full transfer to the IRA without penalty. Forms TSP 70 and TSP 77 are used for full and partial withdrawals. Each of these forms will be found in your TSP account.
But TSP is cheap why would you want to switch from it? Simply put, TSP is no longer cheap compared to other major caregivers. Looking back 10 years, TSP was considered cheap compared to other caregivers, but that is no longer the case. It is now possible to obtain very similar funds or indices as your TSP within an IRA. The only investment unique to your TSP is your G fund.
There are several advantages to transferring money to an IRA. The first and most obvious is that you have unlimited investment opportunities within the IRA.
Another advantage of switching to an IRA is increased flexibility in withdrawing funds. When a retiree withdraws funds from his TSP, the funds go out according to the way that person is invested. In other words, if a person has 70% C fund and 30% G fund, then their withdrawal will come from 70% C fund and 30% G fund.
With the IRA, a retiree can choose to withdraw funds from any investment he or she wants. This option is especially nice if you plan to use bucket strategy, or cataract strategy, in retirement. Regardless of your withdrawal strategy, the IRA is more flexible to withdraw money.
How To Contribute To Your Thrift Savings Plan
You can fund your Thrift Savings Plan with a percentage of your basic pay, incentive pay or bonuses. The Internal Revenue Service puts limits on your TSP contributions, which change each year. Visit the TSP website to see the current IRS limits.
Note that service members who were automatically enrolled in the Blended Retirement System and did not specify a contribution level are automatically contributing 3 percent of their current pay into a traditional TSP account.
Also Check: Best Places To Retire In California
What To Do With Tsp After Retirement
So…I’m new to this thread and with that I feel I need to introduce myself and give some background info.My name is Chuck and I retired from active duty Air Force after 19 LONG years of service. While I was in I started investing with the TSP and did ok…did not put/get nearly what I wanted into it before I retired but I still have a nice little chunk of change in there.I recently got on with the VA and now I am getting matched on my contributions and starting to see that add up. It makes a huge difference! :-)I currently follow a seasonal investment strategy with my TSP and I will soon combine my Uniform services TSP into my VA TSP to make the management of it easier.My question is about actual full out retirement and what do most people choose to do with their TSP monies? Do you keep it in there and buy an annuity? Roll it over into an IRA/401K? What do people do with it?Thanks,
What Should You Do With Your Tsp When You Leave The Service
Advertiser Disclosure: Opinions, reviews, analyses & recommendations are the authors alone. This article may contain links from our advertisers. For more information, please see our .
When I separated from the USAF in 2006, I was faced with a decision regarding my Thrift Savings Plan . Since I would no longer be a member of the armed forces, I could no longer contribute to the TSP. So what should I do? In the end I decided to leave the money in there, but Ill walk you through your options so you can make an informed decision if ever the need arises.
Also Check: List Of Retirement Communities In Florida
You Are Taking Loans From Your Tsp
Taking a loan from your TSP is a bad idea. The money youre putting into your TSP is for retirement, not for buying a new car. If you leave federal employment with an outstanding TSP loan you have to pay back the full loan balance within 90 days. If you dont, the IRS will consider the entire outstanding loan amount as a taxable distribution, taxing the sum as earned income. In addition, TSP borrowers who are younger than 59½ can also get hit with an additional 10% early-withdrawal penalty.
What Should I Do With My Tsp When I Retire
Perhaps the most common question we receive from our government employee clients is: What should I do with my TSP when I retire?
Its a great question, and one we will address in this blog post! The question requires a bit of strategy to ensure you are taking full advantage of the benefits that TSPs have to offer for your specific situation.
While theres not a one-size-fits-all approach, by better understanding the options available to you, you can make a more strategic, wiser decision. As always, we recommend you speak with a professional before taking any action.
What should I do with my TSP when I retire?
Essentially, when you retire you have 4 options for your TSP:
1. Begin regular installment payments
If you separate from government service at age 55 or higher and enter directly into retirement, you may begin taking set withdrawals without incurring an early withdrawal penalty. Some may actually begin as early as 50 if you are in whats considered a Special Category Employee such as law enforcement officers, firefighters, and border protection officers, to name a few. Otherwise, everyone else needs to wait until age 59 and 1/2 in order to begin withdrawals without incurring a penalty.
2. Purchase an annuity
You can actually take your TSP balance and purchase an annuity that will pay you income for life. This is attractive to some who simply want the security of a regular payment, and are worried about running out of money in retirement. It is a security blanket.
Recommended Reading: How Much Money Should You Have Saved When You Retire
Repaying Your Tsp Loan
Even though youre paying your loan back to your own account, failure to repay properly could have serious financial consequences. So you need to know how TSP loan repayment works.
You cant take a new loan after you separate from service.
If we are notified that you have gone into approved nonpay status while you have an outstanding TSP loan, your loan payments will be suspended. In other words, you will not have to make loan payments. However, interest on your loan will continue to accrue while loan payments are suspended. Making payments on your own during your nonpay status will reduce the amount of interest that accrues.
Your loan payment suspension lasts until you return to pay status or until one year passes, whichever comes first. The exception is when youre in nonpay status from your civilian job to perform military service. In that case, your payments will be suspended until you return to pay status, even if its longer than one year. The maximum term of your loan will be extended by the length of your military service.
For more information, including how to notify the TSP of your nonpay status, please refer to the TSP fact sheet Effect of Nonpay Status on Your TSP Account .
The Tsp Investment Options
The TSP offers a choice of six funds in which to invest:
- The Government Securities Investment Fund
- The Fixed-Income Index Investment Fund
- The Common-Stock Index Investment Fund
- The Small-Capitalization Stock Index Investment Fund
- The International-Stock Index Investment Fund
- Specific Lifecycle funds, designed to include a mix of securities held in each of the other five individual funds
The F, S, C, and I funds in the TSP are index funds currently managed by the BlackRock Institutional Trust Company under contract by the Federal Retirement Thrift Investment Board . This independent government agency administers the TSP and acts as a fiduciary that is legally liable to manage the TSP prudently and in the best interests of participants and their beneficiaries.
Index funds in the TSP are designed to mimic the return characteristics of the corresponding benchmark index. For example, the C Fund is invested in a stock index fund replicating the S& P 500 Index, which is made up of the stocks of 500 large- to medium-sized U.S. companies. L funds are invested in the five individual TSP funds, and their asset allocations are based on the individual investors time horizon.
Also Check: University Oaks Retirement Mobile Al
What Happens If You Do A Rollover Instead
When you do a rollover, TSP sends 20% of your funds to the IRS and they send 80% of the funds directly to you. This might sound nice but it can lead to big trouble.
The trouble comes in 60 days when you have to send 100% of the value of your TSP retirement account to the new IRA custodian or face big fines.
For easy numbers, lets say your TSP retirement account was worth $100,000 when you transferred it.
If the transfer is done correctly, $100,000 is sent to your IRA.
However, if you do a rollover, TSP sends the IRS $20,000 and you receive a check for $80,000. Within 60 days, you must deposit $100,000 in your IRA.
But, the IRS will not give you back the $20,000 it received.
You must come up with an *additional* $20,000 to deposit along with your $80,000 check to equal $100,000. If you dont, youll have to pay a 10% penalty *and* be required to pay ordinary income taxes on the $20,000.
And, remember, in this example the TSP retirement account was only $100,000.
What if your TSP retirement account was worth $500,000 before you did a rollover?
TSP would have sent you a check for $400,000 and the IRS a check for $100,000.
Then you would have to come up with an *additional* $100,000 to deposit a total of $500,000 in your IRA.
Trust me in almost every case you want a transfer, not a rollover.