Thrift Savings Plan Withdrawals

[SnowballCamper]

Hello,
The wife and I each have a military pension, plus significant TSP deposits (about 700k combined), plus Roth IRAs of about 100k each. It has finally occurred to me that we are at a low for our marginal tax rate (looking at the rate for about 80k of taxable income) over the history of the tax rate (for 80k of income over the last 70 years or so). We're mid-late 40s in age, so early withdrawal penalties apply, unless the withdrawal is considered to be substantially over our remaining life. The problem seems to be that once a dollar amount (for monthly withdrawals) is chosen, it cannot be changed. This makes it difficult to execute a tax strategy (tax rates change, but we're unable to adjust withdrawal rates, except to meet RMDs in a few decades).

Has anyone here done partial withdrawal from the TSP before age 59 1/2? Is my information that monthly payments can't be changed correct? Do I just need to wait till 59 1/2, and then do a partial withdrawal each year (to maintain flexibility, in contrast to setting a monthly amount)?

 

[JDARNELL]

Aren’t they changing withdrawal options in September? Should be a lot more choices.

 

[NavAir]

Aren’t they changing withdrawal options in September? Should be a lot more choices.

I received a letter from the TSP dated July 19, 2019, stating exactly that. Beginning September 15, 2019 you can stop, start, or change any installment payments at any time. In addition, you can do all of this online, without the need to get printed forms notarized.

https://www.fedweek.com/fedweek/new-tsp-withdrawal-choices-to-launch-in-september-2019/

 

[zinger1457]

The problem seems to be that once a dollar amount (for monthly withdrawals) is chosen, it cannot be changed. This makes it difficult to execute a tax strategy (tax rates change, but we're unable to adjust withdrawal rates, except to meet RMDs in a few decades).

Has anyone here done partial withdrawal from the TSP before age 59 1/2? Is my information that monthly payments can't be changed correct? Do I just need to wait till 59 1/2, and then do a partial withdrawal each year (to maintain flexibility, in contrast to setting a monthly amount)?

As JDARNELL stated the TSP will be changing the withdrawal options sometime in September to make it easier to access your money. The TSP is similar to 401K's in that if you retire during the year you turn 55 you can start taking withdrawals penalty free at 55.

It sounds like what you're trying to do is access your retirement funds penalty free before 55 so you would need to follow the IRS Rule 72t requirements. The changes the TSP are making probably won't help you much with doing a 72t. Doing a 72t does limit your ability to make adjustments on how much you can withdraw until you reach 59.5, only minor changes are allowed so you need to plan carefully for that. You should educate yourself on the 72t requirements, there are many threads on this board discussing them. There was also a very good web site (72t.net) but it was recently closed.

 

[SnowballCamper]

Ahh. Thanks so much for the info on the withdrawal options changing. I'll keep my eye open for that, and read up on that 72t rule.

 

[Nords]

Hello,
The wife and I each have a military pension, plus significant TSP deposits (about 700k combined), plus Roth IRAs of about 100k each. It has finally occurred to me that we are at a low for our marginal tax rate (looking at the rate for about 80k of taxable income) over the history of the tax rate (for 80k of income over the last 70 years or so). We're mid-late 40s in age, so early withdrawal penalties apply, unless the withdrawal is considered to be substantially over our remaining life. The problem seems to be that once a dollar amount (for monthly withdrawals) is chosen, it cannot be changed. This makes it difficult to execute a tax strategy (tax rates change, but we're unable to adjust withdrawal rates, except to meet RMDs in a few decades).

Has anyone here done partial withdrawal from the TSP before age 59 1/2? Is my information that monthly payments can't be changed correct? Do I just need to wait till 59 1/2, and then do a partial withdrawal each year (to maintain flexibility, in contrast to setting a monthly amount)?

Ahh. Thanks so much for the info on the withdrawal options changing. I'll keep my eye open for that, and read up on that 72t rule.

Snowball, the TSP's new withdrawal rules might work for you. However you could also cash out the TSP funds in which you're invested, roll over the entire account to a traditional IRA, invest that IRA's cash into funds for your asset allocation, and then convert a little every year into a Roth IRA.

Rolling over to a traditional IRA allows you to invest in similar funds (some of them with expense ratios as competitive as the TSP) while tweaking your conversion tactics to do it at your pace without additional TSP bureaucracy.

I would not do a 72(t) because it's almost as inflexible as the TSP's existing withdrawal rules.

We spent 16 years converting our traditional TSP accounts to Roth IRAs, and we started by rolling them over to traditional IRAs. Here's an older post with a deeper discussion of the options, as well as some examples.
https://the-military-guide.com/early-withdrawals-from-your-tsp-and-ira-after-the-military/

 

[SnowballCamper]

Just discovered i-ORP. Nice!

So, umm, WOW!

I am pleasantly surprised to find this little tool. And I do understand the concept behind it as I did operations research in a previous life.

In the process of checking it out I came across this link

https://www.i-orp.com/modeldescription/Vol15Issue1.pdf#page=49

Figure 3 at the bottom of page 52 was especially enlightening for my consideration to do the traditional to Roth conversion (or to draw down the traditional balance early).

That is a lot of tax to pay early in retirement for an advantage that I'll have to live to 90+ in order to appreciate. It comes back to the tension between more money now vs. less money later. I think we're on this forum because we recognized that less then was worth it to have more now. At what age does spending less now, in order to have more later stop making sense?