FERS - TSP Withdraw

[chief04010]

I have wanted to post here for quite some time but just never felt right about it. But reading some of the other posts gave me the courage to want to put my situation out there and get some other opinions.
I am 55 years old and work for the Federal Government I’m under the FERS retirement system and have been since 1987 when I started. I bought back my 7 years of military time so my Service Computation Date is in 1980. My only investments are TSP and my home, I want to retire at 59½ not for any number reason but because I’ll be that age on the date that I’ve decided on to retire. It works out well because I have both Traditional and Roth savings in TSP and the Roth portion started 5 years prior to that date. What I would like to do is open a Roth IRA prior to retiring and in about 5 months after retirement withdraw the Roth portion and an equal amount of the Traditional portion then roll only the Roth portion into the Roth IRA that I started prior to retirement. The other traditional money I’ll use to pay off my mortgage and have some left over for other uses.
My question is does anyone have any knowledge of rules or regulations that would make this plan undoable?

[rothlev]

No, you will owe taxes on the tsp traditional withdrawal. The Roth portion will be tax free. So depending on the month of your retirement you could hike up your tax bracket on all your other income also. If you can, make the tsp traditional withdrawal the following tax year assuming your income is lower, no more w-2 income, so your tax hit will be lower.

[chief04010]

I plan to retire effective Dec 31. I would make the withdraw of both the traditional and roth fund in May following my retirement. I would be willing to pay the taxes on the traditional money which TSP would withhold at the time of withdraw. As for my other income other than my FERS annuity there wouldn't be any and if I was in a higher bracket for that year I could deal with it. The benefit would be having the Roth portion of my TSP out from the TSP rules that say it has to be withdrawn equally. I could take monthly payments from what was left in the traditional TSP and have the Tax free roth in a place for use in the future or as a legacy for my descendents.

[zinger1457]

It sounds doable but I'm not familiar with the TSP rules with regards to ROTH, when I left government service that option wasn't available. I would assume it's the same as the regular TSP and you can do a one time partial or full withdrawal after retirement. I agree that the TSP withdrawal options are too restrictive but unless you need that money for your monthly retirement expenses, or you're unhappy with the TSP investment options, I would suggest leaving it in the TSP until you really need it. I doubt you'll find a ROTH IRA that offers the low fee expenses that the TSP plan offers.

With today's low interest rates I'm not so sure about the wisdom of paying off your mortgage using your regular TSP. Depending on the amount you would need to withdraw you could face a big tax hit. You may want to consult with a financial planner/advisor.

[chief04010]

Nothing is etched in stone as I still have 4 1/2 years till my retirement. I will be doing a lot more planning before then. My mortgage would be in the area of 100K and I should have close to 1M or more in TSP, of that about 150K would Roth TSP the rest traditional. I'm not sure exactly what my pension will be but a ballpark guess would be around 3K/Month not really enough for the lifestyle I want to enjoy in retirement. So I may be taking 2K/month from TSP. But as I said this is all in the planning stage. Thanks for your advise.

[rothlev]

Run your numbers thru a tax calculator before you make that traditional withdrawal. The tax hit may be a deal breaker . You will be better off making monthly withdrawals to pay down the mortgage with. ( ie: doing it over the course of several years) Also look at state tax issues.

[rothlev]

Are you single or married. ? What other income would you have? In any event you may easily be looking at the 28% tax bracket.

[chief04010]

I'm married, I will have my FERS pension and a small amount from the VA ($130.00/month which is tax exempt) I should get the SS Sup that will be an extra 1400 - 1500/month until age 62. My state has no state income tax. My spouse does not work and I figure my monthly income upon retirement will be around 6k which is all that added together.

[rothlev]

O.K. so you are talking about taking a one time 150k taxable withdrawal from your TSP? correct.

If it were me, I would take the 150k you are talking about in chunks. (use a tax caluclator to figure the max to try to keep the income in the 15% bracket. )That could save you about 22k in taxes. ( rough guesstimate) Add that to your 2k a month so you dont run afoul of the rules for TSP withdrawals and then lower the total in a few years . You can probably take another 2k or so a month total it to 4k from the TSP and still stay in the 15% bracket. If you take the whole thing in one year you are going to pay out 28% in taxes.

Anyway, as you said you've got plenty of time to figure all this out.

[drb391]

like zinger, I left before the Roth option, but... my withdrawals are taken out of the different funds proportionally ( I'm in 3 of the L funds). no options to specify how they are taken out. s'pose you could reshuffle after, tho'. again, not familiar with rules regarding the new fund

[chief04010]

The TSP rules are the same for the roth money that you have except you aren't taxed on that portion when it is withdrawn. However, when you make any withdraw they take equal amounts of Roth and Traditional money from your account to make the distribution. The Roth isn't tracked by fund and you have no control other than moving from the various funds and the roth money is not treated separately during the transfers. Than is why I'm toying with the idea of making a onetime withdraw that would take out all of the Roth and an equal amount of traditional. Then rolling the roth portion into a Roth IRA that would give me control over that money and just suck up the fact that I'd have to pay taxes on the traditional amount that I withdraw. My main concern is if I can just rollover the roth money and how long I have to roll it over after the withdraw and do I have to have the Roth IRA open prior to retiring. As far as the taxes are concerned I would possibly consider paying off the mortgage by taking larger monthly distributions to lower the tax rate, but that wouldn't help me in regard to getting control over 100K+ of roth money that I want to allow to grow tax free while I take the taxable monthly distributions from my traditional TSP account.

[jazz4cash]

Thanks for posting this! I was not aware of any restrictions in DW's TSP.

A quick read from this site ....https://www.tsp.gov/PDF/formspubs/tspbk02.pdf suggests you can seperate the Roth and non-Roth balances upon withdrawal. The non-Roth portion should qualify for a rollover which would maintain tax deferred status..........


Transferring Your Withdrawal
Your TSP account is a portable retirement benefit. This
means that when you make a full or partial withdrawal
of your account after you leave service, you can have the
TSP transfer part or all of your single payment or certain
monthly payments to an IRA or an eligible employer
plan (for example, the 401(k) plan of a new employer).
Check with your new employer to see if its plan can accept
your transfer. Any tax-deferred amounts that are
transferred will retain their tax-deferred status until you
withdraw your money.
Single or partial withdrawals. If you have only one
type of balance (traditional or Roth) in your TSP account,
you can direct all or a part of your single payment
or partial withdrawal to only one IRA account or eligible
employer plan. If you have both traditional (non-Roth)
and Roth balances in your TSP account, you can direct
all or a part of the traditional (non-Roth) portion to one
IRA or plan, and all or a part of the Roth portion of the
payment to either another IRA account or plan or to the
same IRA account or plan (assuming you meet the eligibility
requirements of the receiving plan(s)). Any amounts
not transferred will be paid to you by check unless you have
chosen to have that amount sent electronically to your
checking or savings account by direct deposit.

[rothlev]

from the tsp booklet:

Any withdrawal from your account will be made up of a
proportional amount of traditional (non-Roth) and Roth
money.

I would call the tsp phone line to verify that you can transfer only the Roth money into a Roth IRA. sounds like you can. So you would do a direct rollerover transfer of the Roth money and leave the traditional in the tsp account, making withdrawals on the schedule you set.

[jazz4cash]

Quote:

Originally Posted by rothlev from the tsp booklet: Any withdrawal from your account will be made up of a proportional amount of traditional (non-Roth) and Roth money.

Ok, but you can do a rollover into a seperate traditonal IRA for the non-roth portion, according to the link I posted above. So the way I read this, if your account is 50/50, any withdrawal would consist of 50% roth and 50% non-Roth. The non-Roth can be rolled into a traditional IRA and retain tax deferred status. The Roth portion can be rolled into a Roth IRA used in any manner since there is no tax consequence.

[rothlev]

I think proportional means by %. So if the OP leaves all his money in the TSP everytime he makes a withdrawal part of it ( ie) 15% or so will be Roth money. He does not want to do this. He wants the Roth money to be left for inheritance purposes.

So, he has to do a direct rollover transfer of all the Roth money 1st, then his withdrawals from the TSP will be all traditional ( tax deferred money)

[chief04010]

Ok, first thanks for all the advise and interest in this. I think what I’m understanding here is that if I withdraw the full amount of my roth and an equal amout of my traditional money from TSP I can roll over the roth into a roth IRA and the traditional into a Traditional IRA , this would be about 300k so lets say $150K in each, then Ii take monthly payments of say 3k instead of 2K to make my mortgage payment. My tax bracket would be ok and I could have the roth money growing tax free I could even start taking money out of the traditional IRA in 5 years and lower the amount coming from TSP or am I wrong about the 5 year requirement on the new traditional IRA?

[rothlev]

Yes, my understanding is you can transfer any amount of your TSP. When you do the transfer make sure it goes directly from the TSP into the account that you set up. ( not to you) Once the Roth tsp money is transfered into a Roth IRA you should be fine making monthly withdrawals from the traditional TSP. not sure why you want to transfer part of the traditional money thou. The TSP is a pretty good deal expense ratio wise. There is no new 5 year requirement on the Roth IRA. There is no 5 year requirement on traditional IRA's. You only have to be 59 1/2 . ( which you said you will be ) All traditional withdrawals will be 100% taxable at your tax rate. If you are under 59 1/2 then you get hit with another tax a 10% penalty. As I said, i think you'll do better paying down your mortgage over the course of 4/5 years because of the huge tax hit you'll incure by taking 150k out in one tax year.

[painterbill]

"I should get the SS Sup that will be an extra 1400 - 1500/month until age 62". The SS Sup I receive is about 75% (~$200 less) of my agencies estimate and about half of what SS estimates I will receive at 62. I had OPM show me the math after retirement and my agency was wrong. They also only count time during your federal employment, 1,400-1,500 would take a very high salary and many years. A friend also retired during the same time period and his supplement was about 75% of the estimate he was given. All things considered, I'm still a happy camper two years in!

[rothlev]

Make sure you understand the difference between a withdrawal and a transfer.

You can according to the script I read transfer all or a part of either Roth or traditional.

It is withdrawing the money that causes the proportional problem. So I would transfer the Roth portion, and make withdrawals directly from the TSP of the traditonal.

If you have both traditional (non-Roth)
and Roth balances in your TSP account, you can direct
all or a part of the traditional (non-Roth) portion to one
IRA or plan, and all or a part of the Roth portion of the
payment to either another IRA account or plan or to

[chief04010]

Quote:

Originally Posted by painterbill "I should get the SS Sup that will be an extra 1400 - 1500/month until age 62". The SS Sup I receive is about 75% (~$200 less) of my agencies estimate and about half of what SS estimates I will receive at 62. I had OPM show me the math after retirement and my agency was wrong. They also only count time during your federal employment, 1,400-1,500 would take a very high salary and many years. A friend also retired during the same time period and his supplement was about 75% of the estimate he was given. All things considered, I'm still a happy camper two years in!

Let me apologize for going away from the topic for a moment. But I wanted to address the comment made about the amount of Social Security Supplement I estimated. I said that I should get about $1400-$1500 per month. Some questioned that amount. I am by far no expert on the matter and if there are experts out there I would be grateful if they would add their 2 cents. I can only say how I came to that estimate, using the website www.fedcalc.com I input my data and using the most recent Social Security Statement estimate of a benefit at age 62 of $1716 a month, the FERS annuity calculator on the web site above gave me this result on the last page:
Based on your estimated annual social security benefit at age 62 of $20,592.00, you would also receive a FERS Annuity Supplement of approximately $1,544.40 (per month) until age 62, depending on other personal history and restrictions. Please visit a financial retirement specialist for an accurate estimate based on your employment history.
So I think saying that I should get between $1400 and $1500 is somewhat conservative, if this is wrong someone please point me in the direction of a more accurate calculator so that I may revise my projection.
Thank you