Spouse and I came to the TSP relatively late in our careers. When I retired, one day a TSP check arrived in the mail-- kicking me out for my puny balance-- so I never had to deal with the distribution rules. I rolled the check into an IRA and haven't had to make a TSP decision since then.
Spouse's TSP account has a slightly larger balance. It's enough that the TSP won't kick her out, but it's not enough to make a difference to our lifestyle or our AA or our SWR. In fact we could give it away, although I'm not familiar with the new tax rules on donating IRA RMDs to charity.
She's retiring in December but she won't start drawing her Reserve pension until 2022. She won't turn 70½ until 2032, so there's plenty of time to ruminate over our options.
The default would be to do nothing for a while. As I understand the TSP rules (
http://www.tsp.gov/uniserv/forms/tspbk02.pdf), she can leave her shares there until the year she turns 70½. At that point she has to start RMDs, or withdraw it all (for example, roll it over to another IRA or take a distribution & tax hit), or buy an annuity. Since our pensions are already coming from the federal govt, I think we're going to skip the annuity option.
Anytime after she hits 59½ she could start penalty-free withdrawals. Anytime after this December she could withdraw a chunk of money from the TSP, roll it over to an IRA, and start 72(t) SEPPs. Since we don't need the money, I think we're going to skip these options.
Anytime after this December she could roll her TSP over to an IRA. However the TSP funds have been lowering their expense ratios and are now at 0.03% (just three basis points) so I doubt that we'd do better anywhere else. Skip.
Anytime after this December she could roll her TSP over to an IRA and convert it to a Roth IRA. All the money in the TSP is pre-tax salary so there'd be some minor taxes-- and then we'd be paying higher expense ratios in whatever else we invested in. Although it would avoid RMDs and further taxes, this is an option that might not be worth the effort. Probable skip.
I need to research the tax rules, but as I understand it an IRA RMD can be contributed to charity without being taxed. That means spouse could leave her TSP alone until she turns 70½, roll it all over to an IRA, and start donating it to charity. Due to the small balance of her account, its tiny expense ratio, and the zero hassle factor, this seems to be the best option. Of course a lot can change in 24 years.
I'm intrigued by the pamphlet's claim that we could roll her conventional IRA into the TSP. That would immediately cut her IRA expense ratio from about 0.58% to 0.03%. However that IRA balance is only about 8% of our ER portfolio. It's nothing to sneeze at, but it's another account whose RMDs could be donated to charity. Has anyone transferred money into the TSP from their IRA? Any unexpected problems we should be aware of?
Any options or issues that I've missed?
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