Delivered on: Thursday, April 18, 2024

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TSP Withdrawal Options

How to get money out of the TSP in retirement:

• ACCESS: How (and when) you can withdraw from your TSP funds
• RESTRICTIONS: Limitations on withdrawal options in retirement
• TAXES: Tax consequences to expect in retirement—good and bad!

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Prefer to read instead? A transcript of this webinar is below:

Well, hello and welcome to the FedImpact webinar today on the TSP Withdrawal Options. Boy, we always have so much to cover in these sessions, but I’m glad we’re talking a little bit about the way in which we get to use the money later in retirement instead of trying to get you guys to contribute more while you’re working. Today’s session is really hopefully a little bit fun for you to get an idea of what you’re going to be spending your money on in retirement and how the access to your TSP really works.

You guys know me. I’m Chris Kowalik, the founder of ProFeds, the developer of the FedImpact Retirement Workshop, and the host of the FedImpact podcast. I love, love, love talking to federal employees about how these benefits work and the things that you need to know to make good decisions about the benefits that you have available. And of course, a huge one that you have is the Thrift Savings Plan. Definitely have a lot to share with you today.

TSP Withdrawal Options

Today’s session is all about those withdrawal options and ultimately how to get money out of the TSP when you retire.

Agenda

For our agenda today, the overarching themes that we’re going to be covering, how and when you can withdraw money from your TSP, any of the restrictions that are put in place as far as the types of withdrawal options that you can make or the timing of those, and then of course, taxes. We have to talk about the tax consequences that we can expect in retirement. Sometimes they’re good, sometimes they’re bad, but we need to have a good understanding of taxes and how these things work.

What this webinar will NOT cover

It is important to know that we cannot boil the ocean today. We cannot cover every little nuance of all of these benefits and the withdrawal options available in the TSP. We’re giving a summary overview of this. There is so much that I want to say about how important it is that we’ve thought about how much we’re taking out of the TSP and that we’re being mindful of taxes and all those pieces.

And believe me, I’m going to mention those things throughout today’s session. But this is not the end all, be all for deciding how you’re going to take money from the TSP. We’re just simply showing you the options that are available and some of those red flags that we want you to pay attention to.

When you need money from the TSP: The Initial Questions You Need to Answer

When it gets to a point that you need money from the TSP, you need to know the types of questions you should be asking before you ever, ever fill out a withdrawal form. Here are the six initial questions that you need to answer for yourself to have a better understanding of how money needs to come out of your account.

The first is why. Why do you need the money? Is it some ongoing thing that you have that you need more cashflow coming into your bank account on a regular basis? Is this a one-time purchase? What’s that look like? And we’re going to dive into each of these in greater detail.

Next is what amount do you need to take? Is it all at once? Is it over time? What’s that look like? Next is when. When are you allowed to access your money and are there any penalties for doing so? We of course don’t love paying taxes and we really don’t love paying penalties.

Next is who. Boy, this is a gotcha here. Who is required to approve the withdrawal? Super, super important for the vast majority of you. Next is how. How is your withdrawal taxed? We’re going to focus on the federal level today, but of course each of you are in different states that may tax the TSP withdrawal differently. Very important that you’re aware of that piece too. And then the last question is where. Where do you go to initiate the withdrawal once you know what you should be doing?

WHY do you need the money?

If you have ongoing needs, let’s say that you just need more cashflow in your bank account to either maintain or perhaps upgrade your standard of living, you realize there’s more month than money and you need a little bit more flowing in the door on a regular basis. Those would be ongoing needs that you have.

Next is a one-time need, and it’s a little bit of a misnomer here. A one-time need can happen many times, but the idea that there’s some large capital purchase that you want to make. Maybe your dream has always been to buy an RV and visit all the US parks when you retire, or a big vacation that you had planned for your family or you’re trying to pay off a big debt.

Maybe it’s your house, maybe it’s credit cards, whatever it might be. And I’m not suggesting these are good ideas. I’m simply suggesting that this is a very common way that people use the TSP and we’ll talk about some of the downsides of these types of payments here in today’s session.

The next option is actually if you don’t need the money, you simply wish to move it to a private sector IRA account. If you want your money managed outside of the TSP, there is an option to be able to do that, and we’ll break that down today.

WHAT amount do you take?

When you’re trying to figure out how much you need, you need to be mindful that when you take money out of the TSP, your account value goes down. And obviously, your account value’s going down.

I’m not suggesting that you don’t make that connection, but what I do want to stress upon you is that when you take money out of the account, those dollars aren’t working for you anymore. They’re not continuing to earn anything for you for the future. We need to just be mindful that we’re taking our players out of the game when you take money out of the TSP.

And then next, we want to make sure that you are accounting for taxes. You have to be mindful of the tax obligation that you have on any money that you pull from the traditional side of TSP. Roth TSP is treated a little bit differently. We’ll talk about that today as well. But anytime we’re taking traditional money out of this account, we have to understand the tax consequence to what we’re doing.

In the event that you are wishing not to take money from the TSP to use it, but to move it to another type of account like an IRA, there’s no tax at the time of the actual transfer to that other account. It’s just from that other account, when you take the money to spend it, that’s when you’ll be taxed. You’re not going to avoid the tax no matter what kind of account or how many times you move it around. It’s not a big shell game. You’re going to have to pay the tax that you owe on that traditional TSP money whether you like it or not.

WHEN can you access (and are there penalties)?

The first thing I want everybody to realize is that when you separate or retire from federal service, there will be a 30-day hold on your TSP account. You will not be able to access your TSP to be able to initiate any withdrawals during that first 30 days.

I’ve seen situations personally where this time period is a lot longer because perhaps there was a mistake made at the agency level and they didn’t notify the TSP that you had separated or retired. And so the TSP doesn’t know that they’re supposed to allow you to access your money. And so we want to be really careful that you are not reliant in the short term on taking money out of the TSP.

Penalty-Free Access to TSP

The next thing that I want to make sure of is that you understand the early withdrawal penalties. The IRS really wants you to keep money in accounts like the TSP until you’re 59 1/2. If you’re at least 59 1/2, we know for sure there is no penalty when you take money out of the TSP. However, if you are under 59 1/2, there are a number of exceptions to a 10% early withdrawal penalty that you can avoid that penalty if you meet that criteria.

We’ll talk about that here in just a second. But I want to be very clear when we’re talking about early withdrawal penalties, you know you have to pay the tax on the money. This is separate. Although I know the tax feels like a penalty, this is what the IRS deems as an early withdrawal penalty. Essentially, if you take money out and you weren’t otherwise allowed to do so by the IRS rules, that you are going to not only pay the tax on that money but you’re also going to pay a 10% penalty on any of the amount that you withdrew.

We want to be super, super careful that we avoid this penalty if you’re under 59 1/2, and I want to show you how. I pulled a slide from our workshop that there’s a lot going on here. Follow along based on the type of employee you are.

If you are a federal employee who’s retiring or separating, the government doesn’t care which one of those it is, if you are retiring or separating from federal service, you are allowed to access your TSP funds without penalty as long as you meet these rules.

If you are a regular employee, meaning you are not a law enforcement officer, air traffic controller or firefighter, you are a regular employee, if you retire or separate in the calendar year in which you turn age 55 or older, you will not have a penalty if you take money out of your TSP.

We know you don’t have it if you’re 59 1/2, but here’s a special 4.5-year window that you are able to access money directly from your TSP account and not suffer that IRS penalty. This is a really great perk and one that I want you to pay attention to.

But the other category of employees, those special categories, the law enforcement officers, air traffic controllers or firefighters, as long as you retire or separate in the calendar year in which you turn 50 or older, or you retire or separate at any age if you have at least 25 years of covered service, meaning you are in a law enforcement, air traffic controller, or firefighter position. This is a new rule that just went into effect not all that long ago, and so we want to make sure that everybody’s super clear on how to avoid this penalty.

In good government fashion, there is a whole list of exceptions to this 59 1/2 rule and this early withdrawal penalty. You can find all of those. We have a little footer on the slide at tsp.gov. We’ve listed the link here so you’re able to get right to the tax book that the TSP has that lists all of those pieces. But these are the main exceptions that we have for avoiding that penalty.

WHO is required to approve the withdrawal?

The first one isn’t really an approval, so to speak, but if there are any court-ordered benefits where a court has ordered that a former spouse receives a portion of your TSP, that will always be paid before any other withdrawal is honored in the TSP. So former spouse is going to get first dibs on this money.

Most of the time in court orders, if you were divorced many years ago, that withdrawal has probably already happened because they want the former spouse to have control over that money pretty soon after the order is put in place. It’s rare that there would be a delayed withdrawal out of the TSP for a former spouse, but again, you have to look at your court order and see what the court has specified.

If you are a CSRS retiree, your spouse will be notified when you take a withdrawal from the TSP. They’re going to receive a letter at their known address. The joke is if you can beat them to the mailbox, they’ll never know. But there aren’t very many CSRS employees left to be able to retire. And so we’re seeing less and less of this of course as time goes on.

If you are the spouse of a FERS retiree or if you are a FERS retiree and you are married, your spouse must provide their written consent when you request the withdrawal from the TSP. You have to have your spouse on board for these decisions or else you very well may not be able to proceed with a withdrawal.

I do want to make a special note. During COVID, one of these requirements changed. It used to require a spouse to provide their notarized consent where they actually had to take a special form to a notary and get the stamp of approval there that they in fact are the ones signing that document.

Now, they do that through DocuSign at an email address that you are providing. And I want to caution you, if you think you’re going to pull a fast one and do something nefarious to sign for your spouse, it will come back to bite you so don’t even try it. Make sure that your spouse is on board with these decisions to take money out.

HOW is the withdrawal taxed?

Again, I’m going to stay focused at the federal level here, but certainly states have different rules as well. For the traditional TSP, those withdrawals will be taxed in the year in which you receive them. You have deferred paying taxes for all these years because when you put the money in the traditional TSP, you got a tax advantage in that year. Your tax disadvantage is coming. When you go to take the money out, you’re going to have to pay the tax on it at that time.

For Roth TSP withdrawals, this gets a little bit hairier here. The withdrawals will not be taxed as long as you’re at least age 59 1/2 when you take the money and at least five years has passed since you first funded the Roth TSP. If your money is in the Roth TSP, you must meet both of these age and years rules in order to avoid paying tax on the gain on your Roth TSP. You already paid tax on the principal when it went in.

The question is do you meet the IRS’s rules to avoid paying tax on the gain? And in order to do that, you have to be at least 59 1/2 and five years has to have passed since you first funded that Roth TSP.

Federal Tax Withholdings (2 Methods)

Again, in good government fashion, there are two different ways that the government is going to withhold taxes from your payments from the TSP, from the amount that you are withdrawing. Let’s take a look at what those are. Here are the two different methods. Don’t ask me how they came up with these, but here they are.

The first method is that there’s going to be a mandatory 20% federal tax withholding on any payments that are paid directly to you. These are single payments, so a direct payment, lump sum of either all or part of your account balance. We’re going to see these phrases used later in these slides. But if you do a single payment to yourself, all or part of that account balance is going to get a 20% federal income tax withholding.

If you do monthly payments, if they’re large enough that the TSP believes that your account will be paid out 10 years from now, that there’s still going to be money left in your account based on some expectations that the TSP has, some assumptions that they’re making, then again, the 20% mandatory withholding. So those are two normal ways that people take money out of the TSP.

However, there’s a different method and this is a withholding based on the assumption that you, the recipient, are married and claiming three withholdings. How they came up with three withholdings, I have no idea, but it is based on these three types of payments. If you decide to do monthly payments and have the TSP calculate how much that monthly payment is based on your life expectancy. Next are monthly payments that are expected to pay out more than 10 years. And then last are payments received from an annuity product.

MetLife has the annuity contract. We’ll talk a little bit more about that right now, but if you receive payments from there, then it’s going to go off this different type of withholding. Very bizarre the way the TSP has decided to delineate with the tax withholding. However, withholdings and obligations are very different.

They’re very different. It is important that you understand that just because this is the amount that’s automatically withheld from the payment that you’re receiving, when you go to file your taxes, that’s when you really figure out how much that withdrawal has cost you in taxes.

Because if they withheld less than what you owed, then you’re going to have a bill to pay. And if it turns out they withheld too much based on your tax bracket and your tax obligation, then of course you may get some of that back. This is just what they’re going to initially withhold and then it comes out in the wash when you go to file your taxes.

WHERE do you go to initiate the withdrawal?

I first want to say that there are no more paper forms with the TSP. They don’t accept paper forms anymore. You have to go to tsp.gov to initiate that withdrawal. You’re going to use this TSP wizard, if you will. It’s basically a series of screens that you go through and answer questions. And then based on how you’re answering them, they’re completing the form for you so that things end up in the right boxes and all that.

But here’s the deal. We have seen a countless number of employees use this wizard, and because they didn’t understand the questions that they were answering, they answered them wrong. But here’s what you need to know.

The TSP will still process the request even if you’re like, “Oh gosh, I didn’t mean that. I didn’t mean for the check to come to me. I wanted to send it to this other account,” or, “I didn’t want it all to come to me at one time. I wanted those monthly payments,” or, “I wanted an annuity but I didn’t know I was selecting the TSP annuity. Oops.” Nope, the TSP doesn’t care. As long as you have completed all of the questions, they will initiate the withdrawal whether it was the right thing for you or not.

It’s super, super important that you have these questions answered correctly in the wizard. And again, don’t be afraid to ask for help on this. This is complicated by nature and we want to make sure that you get this right because one thing you’re going to see a little bit later is there are very few options for do-overs. And if there are, they’re typically very painful.

TSP Withdrawals

Again, for the wizard, you’re going to log into tsp.gov. You will see the withdrawal options that you are eligible for at that time. If you are still working, you’re not going to see retirement options. If you are already retired, you’re not going to see options for accessing TSP money while you’re still working. It’s only going to show you that type of withdrawal that you’re eligible for at that moment in time that you log in.

If you are married, your spouse will need to provide their written consent for the withdrawal via email. That’s going to happen by DocuSign. It’s not technically a physical written consent, but it is their consent through DocuSign.

I do want to also mention that if you are trying to move your TSP to an IRA with a private carrier, they’re going to take you partway through the wizard. They’re going to make you pause and then wait seven days to complete the transaction.

I know TSP doesn’t want you to move your money out of that account, but this seems a little weird to do it this way. They’re dissuading people from moving money out of the TSP, and that’s your right to do with your TSP what you wish. It’s bizarre, but maybe not all that surprising that they put a little bit of a roadblock here to try to dissuade people from getting money out of the TSP.

Withdrawal options available in the TSP: How Do You Need Your TSP $$$

When you’re deciding to take money out of the TSP, what method do we need to choose? If we have a one-time need, off to the left-hand side, you’re going to see that you can either do a partial withdrawal, so this is a lump sum payment from your account of part of your account, or you can do a full withdrawal.

You can take the whole thing. Be careful. Be careful actually with both of these because any of that big sum of money that you receive is going to be taxable to you in the year in which you receive it and very well may put you in a different tax bracket if it’s a large enough money.

Next is ongoing need for money. Here, you’ve decided you have more month than money and you need a little bit more coming in the door every month to be able to make the standard of living that you’ve chosen work. And so your two choices are going to be either installment payments at a yearly, quarterly, or monthly basis, or the MetLife annuity.

We are going to talk more in depth about really all of these options, but specifically about the installment payments and the MetLife annuity. Next, we’ll talk about moving money to a private IRA. You can do that either part of your account or all of your account. So a partial transfer or a full transfer to be able to move the money.

Partial Withdrawal

This was the left-hand side of that previous screen. For you to do a partial withdrawal, you need to take at least $1,000 out of the account. There really is no limit anymore to the number of partial withdrawals that you can take, but there is a limit to how often you can do it. There must be at least 30 days between your requests.

It is important to know that if you’re already taking those installment payments yearly, monthly, quarterly, you’re also allowed to take a partial withdrawal. You could say, “I’m getting $1,000 a month from the TSP, but I also want to take 30,000 out to do whatever.” You’re still allowed to do that. It’s not an all or nothing anymore. It used to very much be that way, but the Modernization Act changed a little bit of how these options play with one another.

Full Withdrawal

I want you to be very careful about doing a full withdrawal from the TSP. Of course we have the tax problem, but once you take a full withdrawal from the TSP, the account balance goes to zero and it will be closed. So you will not ever have an opportunity to return back to the TSP later if you decide that whatever you moved your money to isn’t quite what you wanted.

If you had left a little bit in there, you could have put the money back into the account, but you wouldn’t be able to do that if your account is closed. If you request a full withdrawal, let’s say that you’ve been receiving monthly payments from the TSP for quite some time, if you request a full withdrawal, those installment payments stop because now you’re taking all of the money out of the account. We have to be careful what choices we’re making and know the consequences here.

Installment Payments

I’ve mentioned them a couple of times. Here’s how they work. You can choose for the TSP to automatically send you payments from your account either monthly, quarterly, or yearly. You can stop or change the amount at any time that you wish, which is very in line with what you do out in the private sector. This is not some amazing feature of the TSP. This is normal.

And then there are two methods for setting your installment payments, so the actual dollar amount. The first one is that you choose the amount. You have a fixed dollar amount. You say, “I want $1,000 a month or $5,000 a month,” whatever your amount is. You can easily run out of money in the TSP if you’re not careful with this choice.

The next option is a life expectancy model. You’re going to basically ask the TSP to calculate the dollar amount for you based on your account balance and the age when your installments begin. And every year, they’re going to go back and recalculate how much your installment payment should be based on how old you are at that time and the account balance from the prior year.

They’re going to continue to adjust that number, and I’m going to guess that it’s probably going to go down because your account balance is going down and your age is going up. The life expectancy that you have continues to get shorter and the amount you’re pulling from gets lower. We tend to see those numbers going down.

Life Annuity

This is one we get a fair number of questions about, but it’s so confusing for most people who don’t deal with annuities on a regular basis to really understand how they work. We’re just going to try to break this down in as simple of a fashion as we can. A life annuity is an exchange of a lump sum value of money. And in exchange for giving the company that lump sum, you are going to receive guaranteed monthly income for the rest of your life. That’s how normal annuities work.

And it’s the same for the TSP but they have some weird things that happen with it that I want to point out. You are allowed to use all or part of your TSP account to purchase an annuity through MetLife. That is their current contract holder. Of course, you’re free to go use your TSP money to go purchase whatever product you want out in the private sector. But if you’re going to use the TSP’s vendor for the annuity, it is MetLife.

Something important that I want to point out here. This type of annuity that is available is called a SPIA. It’s a single premium immediate annuity, meaning the money goes into the account, income begins right away. You are not allowed to let it sit in the account and grow.

It is an immediate turn on of the payments. That might not sound too bad, but it is important to know that with this SPIA, this is an irrevocable purchase. You are not allowed to cancel or reverse, change your mind, and go back. You can’t take it from MetLife and bring it back into the TSP. It’s a done deal.

So many of you have heard annuities with surrender charges and surrender periods that if you surrender the account too fast, you end up paying a penalty. And while nobody loves paying penalties, at least there’s a choice out in the private sector. In this particular option, there is not a choice to change your mind. It is a permanent decision.

We don’t love this for that reason because you know what? Life changes and sometimes you have to change course a little bit on your finances. And the fact that you are not able to do that with this purchase is really concerning.

Like I mentioned, once you purchase this, it is completely separate from the TSP. And I think it’s worth noting that most private annuities do not work this way. There are a ton of different types of annuities out there. I’m not going to go into those today, but I do not want you to lump all annuities together and think they all behave this way because they don’t. This is very odd that this particular product works this way.

Partial or Full Transfer to an IRA

Decide to move the money out of the TSP into an IRA, you can either take all of your money and move it to an IRA or you could take a portion of your TSP account and move it to an IRA. And keep in mind, I just want to make sure that we’re all clear, an IRA is just a tag that the IRS puts on a bucket of money, so they know how to tax it.

An IRA can be in a mutual fund, a money market, annuity products, CDs, all sorts of different types of vehicles. It’s just a special tag so the IRS knows how to tax that particular bucket of money. Ideally, and in a normal fashion, we would take traditional TSP and it would be moved to a traditional IRA. A Roth TSP is moved to a Roth IRA.

If you’re thinking, “Can I take my traditional TSP and move it to a Roth IRA and then get tax-free income from that point?” I like where your head’s at, but that’s not quite the way this works. If that’s something that interests you, I encourage you to go back and watch the webinar replay that we did on the tax train, on tackling the tax train for the Roth conversion part of TSP.

And you can see all of the rules and how all that works in that webinar. Here’s something important. If you maintain at least that vested balance of $200 or more in the TSP, that account will stay open. That allows you to move your money back into the TSP if you later choose to do so. A lot of options for you that are pretty important.

Frequently Asked Questions

Let’s move into the frequently asked questions here. We get quite a number of questions about TSP so we decided to put them in that Q&A format here.

Q#1: If I have an outstanding loan when I retire, do I have to pay it back before I can take more money from the TSP?

Good news is the answer is no. Regardless if you have an outstanding loan or not, you are still able to choose from all the different withdrawal methods that we just reviewed.

It is important to know though if you stop paying your TSP loan back, it will be declared a taxable distribution. Let’s say you have a $30,000 outstanding loan balance and you decide to stop repaying it, that 30,000 will be declared taxable in that year. Again, maybe not ideal because at that point you have to claim it as income and pay the tax on it. But having a loan in and of itself does not keep you from being able to make the other withdrawal choices.

Q#2: I’m thinking of taking $200,000 out of my TSP to pay off my house. Is there a downside to doing this?

Oh my gosh, there’s a huge downside. If you take $200,000 from your traditional TSP, it’s going to be treated as income that year, like you made an extra $200,000. Not only do you owe the tax on that, that has probably put you into a different tax bracket.

And so it’s even more tax that you owe. And you might think, “But wait, Chris, I have a Roth TSP. What if I took it out of that account instead?” I would tell you, well, you won’t be taxed on that money. But if the whole purpose of the Roth TSP is to allow money to grow tax-free for as long as possible, you are effectively stopping that tax perk by withdrawing the money.

Here’s the deal. Regardless if you have a $200,000 mortgage left on your house or it’s completely paid off, you still get to live in it. While I know you’d love to have that house payment done, the idea that you give up $200,000 of liquid money in the TSP that could be used for other purposes to stick in your house that you may or may not have access to, depending on how the economy is behaving, is scary.

I know it feels like the American dream to have your house paid off, no debt stepping into retirement, but would be a very hefty price to pay to have your house paid off. Typically, we suggest keeping that $200,000 in an account that’s accessible to you to pay for other things and allow that mortgage to naturally be paid off.

Q#3: Some funds in the TSP are doing well and some are not. Can I pick which funds I take money from?

The answer is a big fat no. The TSP does not allow you to choose which of the funds the G, F, C, S, and I to take from when you select your withdrawal options. You can’t say, “Hey, the C fund is killing it right now. I am making boatloads of money. The share value is really high on the C. That’s the perfect time to sell, right?

Just give me my monthly payments from the C fund.” No, the TSP does not let you do that. They’re going to take any of the withdrawals that come from your account, they’ll be taken proportionally to how they’re invested between the G, F, C, S, and I at that time regardless of how the funds are performing. This is also true if the C fund just tanked and the value is really low. We’re still going to take a proportional amount of the amount that you’re asking to come out of the TSP from each of the funds in which they’re invested.

Q#4: Can I choose to pull traditional or Roth money from my TSP?

The answer now is yes. It wasn’t that way prior to this year. This is a really important decision of whether you’re going to take traditional or Roth or both, and you get to make that decision when you do the withdrawal. The idea that you have a traditional bucket of money and a Roth bucket of money that you can choose to take from each year allows you to control your tax obligations each year in retirement.

We love the idea that you have a choice, but we want to make sure that you understand that you can only do that if you have traditional and Roth money in your account. You’re making decisions right now as an employee of where to put your money, traditional or Roth. That is later going to determine the options that you have in retirement to pull money taxable or tax-free at that time.

Q#5: I am already 60 and have taken an in-service withdrawal while I was working. Are my withdrawal choices limited now?

The answer is no. This was one of the things that changed with the TSP Modernization Act. That rule is no longer in effect that restricts someone who had an in-service withdrawal. It basically required you to make a full withdrawal of your account when you retired, but that is no longer the case. You have the same choices as everyone else does that we reviewed earlier in today’s slides.

Q#6: Does my money I take from TSP affect how much I pay for Medicare Part B?

The answer is yes. Any of the money that you receive from the TSP and frankly any of the other sources that you might have too, this is all going to count as income, and that income is going to determine how much you pay for Medicare Part B if you’re enrolled in that.

Medicare is going to look backwards two years to your modified adjusted gross income and they’re going to use two years ago your income to determine your premium today. Here in 2024, we look back to the MAGI from 2022, and that will be the income that we use to determine the premium.

The normal premium right now for Medicare Part B is $174.70 per month. But you might pay upwards of 594 a month if you make too much in a given year. That idea that you take 2, 3, $400,000 out of your account to pay off a mortgage, that will mess your modified adjusted gross income up and subsequently change how much you’re going to have to pay for Medicare Part B.

Again, if you’re enrolled in this program. One lever that you pull ends up affecting other levers in your retirement. So be super, super careful about this. We see too many people fall into this trap.

Q#7: If I don’t need the money from the TSP, can I just leave it there?

The answer is yes, kind of. If you are under the age of 73, you can choose not to take money from your TSP. If you don’t need it, just leave it alone, let it ripe.

But at 73, Uncle Sam taps his watch and says, “Listen, that traditional TSP that you haven’t paid any tax on, the time has come. It’s time for you to pay your taxes on it. And we’re going to make you do that not all at one time, but we’re going to require you to take out what’s called required minimum distributions.”

That means that you’re going to have to take out a certain percentage of your account each year, and that changes every year regardless if you need the money or not, so that you now have taxable income that you have to satisfy. And we know from the prior slide that that money that’s coming to you, again, even if you don’t need it, it may very well affect your Medicare Part B premium as well. So required minimum distributions, very, very important.

Some Notables

The way in which you handle your withdrawals from the TSP will determine how long your account’s going to last you in retirement. We want your account to last as long as you do. Some of you are of the belief that you want to spend your last penny on your deathbed and, hey, listen, that’s okay. That’s your right.

Some of you are of the mindset that whatever’s left over, you’re very grateful are able to go to your children, your grandchildren, a church or a charity or something that you care about. However it is, the way in which you handle your withdrawals, the rate at which you take money, the taxability of that money, all of that will determine how long your account’s going to last you. It is important, and I can’t stress this enough, that the TSP absolves themselves of any responsibility for the actions that you choose to take with your money.

If you’re going to take a half a million dollars out of your account in lump sum to pay off your house or the 200,000, whatever the number might be, the TSP is not going to call you and say, “Are you sure you want to do this? Do you know how much tax you’re going to pay on this? Is there maybe a better way?” That they’re not responsible for any of those things.

They’re not responsible for you filling out your forms properly. And so when we look at if we make a mistake with the TSP like that wizard, and you’re going through and answering the questions and you make a withdrawal decision that you didn’t intend to, most of those are irrevocable. If they are changeable or revocable, it is insanely painful to fix those mistakes. So please, please, please get it right and do not be afraid to ask for help from a qualified professional who can offer an insightful perspective.

Perspective is very, very important in all of this because we see people retire every day. We see the choices that they make and how they ultimately are affected later in retirement. And so having a second set of eyeballs on your decision of what you’re doing with the TSP, super, super important.

If you want an introduction to a financial professional that’s in our network that specifically works with federal employees to get some insight on withdrawals and how that works and are you doing the right thing, there’s a link right at the bottom of this webinar portal that you can ask for that help, and we’d be happy to make an introduction to a professional in our network.

Wrap Up & Next Steps

Today’s session all about TSP withdrawal options. But in order for you to retire with confidence, you don’t just have to get TSP withdrawals right. You’ve got to get all of it right. We encourage you to attend a workshop. We have them all over the place. This is in-person training.

These are sponsored sessions so the price has already been paid. You get to attend and not have to pay anything for both you and your spouse if you are married. Please take advantage of this. We cover all the federal benefits topics that you’re going to be forced to make decisions about when you step into retirement. And the TSP, of course, is one of them.

Following the workshop, there’s always one-on-one help that’s available from a qualified licensed financial professional. And we’re delighted to be able to make that introduction right there in the classroom. You can see all of the details, find all the dates and locations of all of our workshops at FedImpact.com/attend.

I want to thank you all for joining us. We love being able to give these updates on how these benefits work and do a little bit of a deeper dive into some of these topics. Again, you can find a workshop to be able to attend in your local area at FedImpact.com/attend. And to sign up for the next webinar or to see all of the webinar replays from all of our past sessions, you can go to FedImpact.com/webinar. Thank you all so much. We’ll see you next time.

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For an introduction to a financial professional in our network: FedImpact.com/request-to-meet

Register for our next short webinar: FedImpact.com/webinar

Find a comprehensive retirement workshop for your area: FedImpact.com/attend