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Federal Retirees


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prowler  
#1 Posted : Saturday, May 30, 2009 9:42:49 PM(UTC)
prowler

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Joined: 2/9/2009(UTC)
Posts: 14

After printing out Important Tax Information About Your TSP Withdrawal and Required Minimum Distributions and focusing upon my preferred method of RMD distribution, which is "monthly payments", I am left with yet another question. The wording under Section 3. How Your Withdrawal Payment Satisfies the Required Minimum Distribution is as follows: If you take your entire account as a series of monthly payments ...... etc, etc

If the entire account is first "taken", then where does it now reside? Apparently the entire account no longer is invested in the TSP - but has been moved (taken) to some other place. Since I am satisfying the RMD requirements and taking the entire account as a series of monthly payments which are only 4% [annually] of my total balance, does the remainder of my savings reside in some sort of interest bearing account - or is it locked away someplace which no longer allows it to grow?

I had hoped that my remaining balance would continue to reside in the TSP G-Fund and thereby continue to grow at 4%-5% per year but the wording about RMD withdrawals seems to indicate otherwise.
tesaje  
#2 Posted : Sunday, May 31, 2009 12:14:03 AM(UTC)
tesaje

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The money is either inside the tax-deferred TSP or it is outside of it. Where it resides outside of it is up to you. The minimum withdrawals exist so that you have to pay tax on the money during your expected lifetime. Once you withdraw any amount from the tsp (if it is not rolling it over into an IRA which also has minimum withdrawal requirements), and you pay your tax on it, you can spend it or save it as you please.
prowler  
#3 Posted : Sunday, May 31, 2009 1:56:46 AM(UTC)
prowler

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I may be mis-reading the TSP information on RMD withdrawals and creating my own mystery - or I may not be doing a good job of formulating my question here. There's a strong change I am missing the essence of the subject matter.

I do understand the nature of RMD, pertaining either to a retiree's TSP or to any other tax deferred account outside of the TSP. What I don't understand fully is the wording of the "monthly payment" option specified in the TSP document.

Is an investor who turns 70 1/2 years of age required to liquidate 100% of his/her TSP holdings - aside and separately from his/her minimum RMD amount? The TSP [written] instructions always make reference to If you take your entire account ..... etc. etc.

I was hoping the remainder of my TSP balance (following my annual RMD) would remain intact as an investment until the following year when my next RMD came due. To make a comparison, outside of the TSP, a typical IRA simply requires that an annual RMD be withdrawn (according to a formula) allowing the remaining balance of the IRA account to continue to grow unimpeded until the next RMD. There is no stipulation as to taking the IRA's entire account.
RetirednHappy  
#4 Posted : Sunday, May 31, 2009 2:14:18 AM(UTC)
RetirednHappy

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For clarification, your desire to withdraw monthly amounts from your TSP upon reaching the 70 1/2 age is possible and acceptable. The balance of your account remains in TSP, but ultimately the entire account gets withdrawn in those monthly amounts. That is the intent of the phrase "entire account".
prowler  
#5 Posted : Sunday, May 31, 2009 3:19:06 AM(UTC)
prowler

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Retirdnhappy - Thanks for taking the time to read through my posts and then to supply a simple answer. I accept your premise.

Roger
dcec  
#6 Posted : Sunday, May 31, 2009 9:55:37 PM(UTC)
dcec

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Joined: 3/18/2007(UTC)
Posts: 83

I believe I understand what is said about this, but want someone to verify it really works this way. If I choose a withdrawal amount from TSP of say $1000 per month at age 66 and don't change it and then I turn 70 1/2 and the RMD is more than the $1000 per month, the TSP will automatically send me the difference at the end of the year so I won't get in trouble for not taking the RMD. Is this correct, or do I need to change my withdrawal election?
W2R  
#7 Posted : Sunday, May 31, 2009 10:45:57 PM(UTC)
W2R

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I would suggest changing your monthly payment amount so that you know it is already in compliance with the RMD requirements, just to play it safe. IRS problems are the last thing you need when retired and in your 70's. You should be out having fun and enjoying yourself at that time. Smile

[This message was edited by Want2retire on June 01, 2009 at 10:01 AM.]
RetirednHappy  
#8 Posted : Monday, June 01, 2009 6:59:23 AM(UTC)
RetirednHappy

Rank: Senior Member

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Joined: 3/18/2009(UTC)
Posts: 652

I agree with Want2Retire. Make the adjustment request yourself. Don't rely on OPM/IRS to muck it up. It is your financial package, so you should request the change, if the RMD amount needs to be adjusted at the 70 1/2 age.
MaleMan  
#9 Posted : Tuesday, June 02, 2009 2:56:23 PM(UTC)
MaleMan

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Posts: 747


Want2retire and Retirdnhappy are absolutely correct . . .

You must always, always, and I should mention always, do the math yourself. That means once a year you will have to do a third grade arithmetic exercise. This amounts to a simple multiplication exercise.

You must not rely on any financial institution to do this for you. Keep in mind, if you have various tax-favored accounts at different financial institutes that when it comes to RMD's that the effected accounts must be added together as if one.

Also, if you failed to take the minimum amount as stated by the required distribution, IRS will not care where you got your incorrect numbers, they will only care that you owe the tax and penalty. And in case you are wondering, currently the penalty is a whopping 50%.

. . . Bottom Line: Ya Gotta Do The Math!
<font color=RED><em> <center> Just Because You're Paranoid - Doesn't Mean They Aren't Out To Get You. </em> </center></font>
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