TSP Withdrawal Rules and Options

August 7, 2023

TSP Withdrawal Rules and Options:

There are three main ways we will pay to withdraw from TSP when eligible: distribute a lump sum, set up installment payments or choose an annuity. When approaching funds in a TSP (Throwing Thrift Plan), you need to know what rules apply and the different ways to distribute from your plan. Before choosing one of these options, it is important to determine when a participant is first eligible to receive a distribution.

TSP withdrawal age:

Regular FERS employees who leave service the year they are 55 or older can access their TSP and do so without a 10% penalty. Previously, employees with special permissions (law enforcement, firefighters, air traffic controllers) had to leave service the year they turned 50 or older to access their TSP. Under the Privacy Act 2.0 effective January 1, 2023, Special Provision retirees can use their TSP by discontinuing service the year they turn 50 or if they retire. retired with at least 25 years of service at any age.

To access funds while working, you must be 59½ years old. It’s also important to note that any withdrawals made from a traditional TSP are taxable, unless rolled over to an external IRA.

IRA transfer:

To access IRA funds without the 10% early withdrawal penalty, you must be 59.5 years old. As stated earlier, FERS employees who frequently leave service by the time they reach age 55 or older can access their TSP without this 10% penalty. As a result, you may not want to roll all of your TSP money into an IRA if you may need access to your funds before you’re 59 and a half.

TSP Withdrawal Rules and three TSP withdrawal options

Fixed Ratio Distribution:

The first option for accessing TSP is to perform a one-time delivery. Once you reach any of the previously discussed scenarios, you are allowed to withdraw a portion every 30 days.

You can also choose to withdraw all funds from your TSP. With a new TSP website update last year, they require information about your bank or other financial institution to be on file at least 7 days before TSP initiates a transfer. Also, you are limited to one withdrawal in 30 days. There’s no surrounding it, so plan accordingly.

One-time payment:

The second option is installment payments. This means you can choose how much (minimum $25) will be paid to you automatically every month, quarter, or year (depending on your choice). You can also choose to have your payments staggered according to your lifespan. You can stop these amounts or change the amount; however, as of this writing, to change your payment amount, you must call TSP.

Choose an annuity:

The third option is to choose an annuity option. This option provides another source of income that can be guaranteed to last your life in exchange for giving up control of some or all of your funds.

You can choose between single insurance, joint coverage with your spouse, or even joint coverage to cover “insured interests” (who are financially dependent on you). Level or increase payment can be selected. Choosing tiered payments means that the monthly annuity payment amount stays the same each year. Increased monthly payments are those where your monthly payment increases by 2% each year on the anniversary of your first payment.

If you choose the incremental payment option, your initial payout will be lower than if you chose the level option, but will increase each year and potentially significantly more than the level option . You can only choose the phased payment option for single and cohabitation. You cannot choose this option for cohabitation with covered benefits. There are several options for beneficiaries when choosing an annuity. If you select the “cash payment” option, if you die before you have used up the amount for which you purchased the annuity, the remaining amount will be paid in a lump sum to the person you have chosen as the beneficiary. . You can choose this option for single or joint life.

For example, you buy a cash-convertible annuity worth $100,000 and die after receiving only $50,000 in payments. The remaining $50,000 will be paid to your beneficiaries in a one-time payment.

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