How do I use my TSP once I retire? Yes, this is the most frequently asked question by people getting close to retirement, and for a good reason. Nobody is surprised to hear another “it depends” as the response. However, to simplify it, it’s best to divide the options into three categories to weigh their advantages and disadvantages.
The first thing to keep in mind is that until you have been retired for at least 30 days, you are not required to do anything with your Thrift Savings Plan and are not even permitted to do so. You have choices when the 30-day period is over.
Option1: The TSP Annuity
The TSP annuity and the FERS annuity are very different from one another, if not entirely different. With a TSP annuity, you give your TSP funds to MetLife, an insurance provider, in exchange for a lifetime payment guarantee.
An immediate annuity can be purchased in a variety of ways, including:
Life only
Life with period certain
Joint life
Life with remainder
You’ll receive the largest monthly payout from a life-only instant annuity. The monthly annuity payment gets smaller as you add more options. In contrast to a joint life annuity, which would pay out about $2,700 per month, a life-only annuity might pay out $3,000 per month.
A person forfeits access to their TSP balance while choosing one of the aforementioned instant annuity choices. A life with remainder annuity would give the insured income during their lifetime and then pay the beneficiary the leftover balance (the initial purchase amount less the sum of all monthly payments) following the insured’s passing.
Your lifetime income stream is assured with an instant annuity, which is its fundamental advantage. You will already have two guaranteed income sources as a FERS retiree, in the form of your FERS annuity and Social Security. Therefore, giving up access to your investments might not be required to secure the rest of your income.
Pros:
Lifetime income assurance
Cons:
Loss of control over the principle
Subject to interest rates
Inflation might make things more expensive
Option 2: Keep the Money in the TSP
In retirement, you have the option to continue participating in the TSP, which is essentially the same as when you are employed. The two biggest distinctions are that you can no longer contribute and you are not permitted to borrow against your account. In all other respects, your investment options are the same, and you can still modify your account balance in the same way you could while employed.
Access to your assets before age 59 1/2 is one of the main advantages of leaving money in your TSP during retirement. If you retire in the year you turn 55 or later, you can immediately withdraw funds from your TSP without incurring any fees. Employees in the special category (SCE) who retire in the year they turn 50 or later have immediate access to their TSP.
Pros:
Continue to use your TSP as usual
Utilization of your G fund
A quicker and penalty-free way to access your money than an IRA
Cons:
Having only five available investment possibilities
Minimum required distributions from a Roth TSP
Inability to select the funds from which to withdraw money
Potential problems with beneficiaries
3. Transfer to an IRA
The third choice is to move money from your TSP to an IRA. It is possible to transfer funds entirely or in part to an IRA without incurring penalties. To make full and partial withdrawals, use the forms TSP 70 and TSP 77. Your TSP account has each of these forms.
But given how inexpensive the TSP is, why would you want to transfer elsewhere? The TSP is now more expensive than other significant custodians. Ten years ago, the TSP was seen as inexpensive compared to other custodians, but this is no longer the case. In an IRA, purchasing funds or indexes comparable to those in your TSP is now possible. Only your G fund is a particular investment in your TSP.
Moving funds to an IRA has a few advantages. The first is that there are countless ways to invest in an IRA.
Increasing your withdrawal options is another advantage of switching to an IRA. An IRA offers greater withdrawal flexibility, regardless of your withdrawal plan.
Furthermore, transferring funds from a Roth TSP to a Roth IRA can eliminate Required Minimum Distributions (RMDs). Unlike a Roth IRA, a Roth TSP has RMD requirements, while a Roth IRA does not. This gives you more flexibility with withdrawals and lets your money grow and compound income tax-free for a longer period.
Pros:
Additional investment options
Latitude for withdrawals from investments
Roth IRAs don’t require RMDs
Greater adaptability for account inheritors
Cons:
Restricted access until age 59 1/2
No use of the G Fund
Once you withdraw all of your funds from the TSP, you cannot put them back in
Contact Information:
Email: [email protected]
Phone: 9568933225
Bio:
Rick Viader is a Federal Retirement Consultant that uses proven strategies to help federal employees achieve their financial goals and make sure they receive all the benefits they worked so hard to achieve. In helping federal employees, Rick has seen the need to offer retirement plan coaching where Human Resources departments either could not or were not able to assist. For almost 14 years, Rick has specialized in using federal government benefits and retirement systems to maximize retirement incomes. His goals are to guide federal employees to achieve their financial goals while maximizing their retirement incomes.
