Question re: retiree withdrawing from TSP early penalty

[jgman]

Hello,
I am a 58 yr old fed retiree. If I rollover my TSP into a Schwab IRA can I still withdraw penalty-free from the Schwab rollover IRA before 59 1/2?
Thanks!

 

[pb4uski]

No.

 

[Lawrencewendall]

How old were you when you retired from the fed? Under the Rule of 55, you can start withdrawing from the TSP if you retired in the year you turned 55 with no penalty. Have to pay taxes but not penalty.

 

[pb4uski]

^^^ True from a TSP or 401k or similar but not an IRA... if you leave service after 55 then 401k withdrawals are penalty free.... but if you rollover the 401k money to an IRA then the penalty free withdrawals are no longer available until you are 59-1/2.

 

[jgman]

^^^ True from a TSP or 401k or similar but not an IRA... if you leave service after 55 then 401k withdrawals are penalty free.... but if you rollover the 401k money to an IRA then the penalty free withdrawals are no longer available until you are 59-1/2.

Thanks! I was told differently by a TSP rep. Glad I checked as I need access to the funds.

 

[pb4uski]

You may want to check further but I know it is true from a 401k and I'm pretty sure that the TSP works similarly. Hopefully someone who has a TSP will come along and confirm or deny.

Bard seems to think that I was correct:

If you are younger than 59-1/2 and have a TSP that you can do penalty free withdrawals because you left service after 55 and you roll it over to an IRA can you still do penalty free withdrawals?

No, you will not be able to do penalty-free withdrawals from an IRA if you rolled over your TSP that you were able to withdraw from penalty-free because you left service after 55. This is because the rule of 55 only applies to the original TSP account, not to any rollover IRAs.

If you roll over your TSP to an IRA, you will be subject to the normal IRA withdrawal rules. This means that you will have to pay a 10% early withdrawal penalty if you withdraw money from the IRA before you reach age 59½, unless you meet one of the exceptions to the early withdrawal penalty.

The exceptions to the early withdrawal penalty include:

• You are age 59½ or older.
• You are disabled.
• You are using the money to pay for qualified education expenses.
• You are using the money to pay for medical expenses that are not covered by insurance.
• You are using the money to pay for first-time homebuyer expenses.

If you do not meet any of the exceptions, you will have to pay a 10% early withdrawal penalty on any money you withdraw from your IRA before you reach age 59½.

 

[Lawrencewendall]

Ask away. Been retired for 4 years from federal service at age 54. Been pulling monthly withdrawals from TSP with taxes being withheld at 20% since amount is expected to last less than 10 years (Gov contributions pay ALL the taxes!!). Been doing TSP conversions to a Roth for the same frame. Been able to keep everything within the 12% bracket. The new TSP system makes it all much easier. I deal with Fidelity.

 

[jgman]

Ask away. Been retired for 4 years from federal service at age 54. Been pulling monthly withdrawals from TSP with taxes being withheld at 20% since amount is expected to last less than 10 years (Gov contributions pay ALL the taxes!!). Been doing TSP conversions to a Roth for the same frame. Been able to keep everything within the 12% bracket. The new TSP system makes it all much easier. I deal with Fidelity.

Unfortunately the TSP limits you to one withdrawal every 30 days. Also the G fund currently has a yield of around 4 percent. Want to get it into a higher yielding bond

 

[jgman]

You may want to check further but I know it is true from a 401k and I'm pretty sure that the TSP works similarly. Hopefully someone who has a TSP will come along and confirm or deny.

Bard seems to think that I was correct:

ok thanks.....I am 58 1/2 so I can live with the G-fund for a year if necessary.

 

[Lawrencewendall]

Always thought the G fund was a suckers ploy. 100% of mine is the S Fund. Understand that the market was in my favor (since 2011) with its volatility but that is why I chose the S fund. 4 years later and I have not even started to dip into the money I contributed.

Side note: the G Fund doesn't EVEN compare to the my current dividends of 14%. Been beat up here before on my strategy but I see 1 year dividends and future projected dividends. My strategy is outside mainstream talking heads. I'm making 2x what I'm withdrawing. I can do this in perpetuity.

Do what makes you sleep well at night.

 

[FedRetired50]

Yup, rule of 55 only applies to your employer's 401k/TSP at the time of your retirement. If you still have a 401k from a prior employer that doesn't count (but you can combine the accounts before you retire).

Also putting in a plug here for future readers about using SEPP/72t to withdraw from a 401k/TSP penalty-free if you retire before 55 and aren't LEO or other special category.

 

[goingtotravel]

Another retired fed here... you can do a partial rollover of the funds that you don't need between now and when you turn 59 1/2. We wanted to take advantage of the current Treasury bill/notes rates and since we know what amount we want to withdraw from TSP annually we are leaving our pre-59 1/2 money behind in TSP and moving the rest of our fixed income investments to IRA's and buying Treasury bills/notes. We are keeping $$$ in TSP so that if the fixed income market reverses itself eventually we can move funds back if needed since in the past the G fund can be a reasonable fixed income investment (it can pay low rates but never go negative like a bond fund) Note to clarify: We are replacing G fund with Treasury bills and will eventually convert our C/S/I into a Roth at a brokerage)

 

[jgman]

Another retired fed here... you can do a partial rollover of the funds that you don't need between the now and when you turn 59 1/2. We wanted to take advantage of the current Treasury bill/notes rates and since we know what amount we want to withdraw from TSP annually we are leaving our pre-59 1/2 money behind in TSP and moving the rest of our fixed income investments to IRA's and buying Treasury bills/notes. We are keeping $$$ in TSP so that if the fixed income market reverses itself eventually we can move funds back if needed since in the past the G fund can be a reasonable fixed income investment (it can pay low rates but never go negative like a bond fund).

Exactly what I'm planning to do. Any idea how cumbersome the process is to move funds back to the TSP from a rollover IRA (I heard the process can be slow)?

 

[goingtotravel]

Exactly what I'm planning to do. Any idea how cumbersome the process is to move funds back to the TSP from a rollover IRA (I heard the process can be slow)?

Haven't moved any money from a brokerage back to TSP. Funds going the other direction seem to take about 2 weeks from the time we sign off on the transfer to when it becomes available in the IRA's.