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penelope1440  
#1 Posted : Wednesday, November 16, 2011 1:08:58 AM(UTC)
penelope1440

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I am hoping to retire in the beginning of 2012.  My husband and I have made a tentative decision to cash in his retirement account.  It is about $60,000.  He will not have to pay the 10% penalty as he is disabled.  However, we will have to pay income tax on the money.  Since we won't have much taxable income due to retiring in January, I think it is the best time to cash this fund in.  The fund lost 10% last month and has been pretty stagnant over the last 15 years.  Not many funds to chose from.

From this money, we plan to pay off 2 charge cards at 9.9% each, a second mortgage on our home and put a good chunk down to pay off the 1st mortgage, which will be paid off completely when I am finalized in retirement.  The house is valued at $150,000 and mortgage is under $30,000.

Our income will more than cover our expenses in retirement.  We still have a low 6 figure thrift and savings plan.

I am unsure if this is the right move and was wondering if anyone has an opinion or suggestion on a better option.

Thanks.

 

Tryno  
#2 Posted : Wednesday, November 16, 2011 3:35:12 AM(UTC)
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I don't think it's a bad plan.  Getting out of debt would be great.  The key will be staying out of debt.  The other option would be to roll the account to an IRA or investment account with more investment options.  Personally, I lean toward being debt free. 
penelope1440  
#3 Posted : Wednesday, November 16, 2011 5:27:10 AM(UTC)
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Thanks.  That is what we are thinking as well.

 

Not retiring yet  
#4 Posted : Wednesday, November 16, 2011 5:38:05 AM(UTC)
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The part about enough income is what catches my attention.  Considering taxes,  would it be possible, to cash in only HALF  the  retirement fund, and use that to pay off either the mortgage or credit cards?? When your money becomes final, you can actually wait, because then the taxes would be lower.  And if you have enough $$ in retirement, maybe that's the time to pay the credit cards off.    Your tax bill will have to help determine how much you should take out.  The mortgage is also a tax deduction.  So, everything doesn't need to be done in one step.   Just another way to solve the situation.   Either that or win a big lottery prize, and that's taxable too. 
penelope1440  
#5 Posted : Wednesday, November 16, 2011 5:48:10 AM(UTC)
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I have thought about half or a portion as well, BUT don't have a lot of experience or knowledge as to where to roll the half over to.  I also thought that perhaps we could fund a Roth.  I am considering contacting the financial planner at our Credit Union and see what he recommends.  I have a lot to learn.  I know the turbotax software comes out the beginning of December and I can estimate the taxes then.  Thanks for your ideas. 
Youpdated  
#6 Posted : Tuesday, March 20, 2012 1:12:41 PM(UTC)
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Youpdated  
#7 Posted : Tuesday, March 20, 2012 1:23:26 PM(UTC)
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If your mortgage is at the super-low rates we're experiencing these days, don't be in a hurry to eliminate it unless you have a pretty large cash/savings fund that you could afford to live on for @ 6 months should all else go south. Probably the only tax deduction that will remain after the next election is home mortagage interest. Get rid of the credit card debt, but think about refinancing to a 3.5% 15-year loan to eliminate the current first & second mortgages and put any cash in the bank, TSP, Roth, etc.

Angel1955  
#8 Posted : Wednesday, March 28, 2012 7:04:22 AM(UTC)
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I thought about paying off my mortgage - did not as it was one of the few things I could take a tax deduction on - I have been debating about leaving my money in TSP or rolling it over -
Not retiring yet  
#9 Posted : Wednesday, March 28, 2012 7:48:21 AM(UTC)
Not retiring yet

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Angel,  You have tomorrow and Friday,  to take the  Required minimum distribution from TSP.  OR  you may actually forfeit  those $$.    You may have to go on line to fill out the form to take the distribution   (based on how long they think your life expectancy will be).  DO NOT WAIT.
Not retiring yet  
#10 Posted : Wednesday, March 28, 2012 8:04:17 AM(UTC)
Not retiring yet

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ANGEL,  this is from  my federal retirement.   You may want to start reading that whole site.  Here is your information:   There is more there, but, this is the big issue:   

April 1, 2012 is the deadline for any federal employee or annuitant with traditional IRA accounts and who became age 70.5 sometime during calendar year 2011. That is, those employees or annuitants who were born between July 1, 1940 and June 30, 1941. During 2011, these individuals were required under IRS rules to take their first minimum required distribution (MRD) from their traditional IRA accounts. The deadline for taking this first MRD for 2011 is April 1, 2012.

Not retiring yet  
#11 Posted : Wednesday, March 28, 2012 8:06:16 AM(UTC)
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EXPLANATION    OF  CONSEQUENCES.   

The IRS has a penalty for not taking a MRD. The penalty is 50 percent of whatever portion of the MRD that is not withdrawn. For example, if a traditional IRA owner who became age 70.5 during 2011 was required to make an MRD of $3,000 and did not make any of the $3,000 MRD before Apr. 1, 2012, the individual will be subject to an IRS penalty of $1,500 (50 percent of $3,000). The MRD requirement continues every year after a traditional IRA becomes age 70.5. 

Youpdated  
#12 Posted : Thursday, March 29, 2012 2:43:38 AM(UTC)
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Penelope: I didn't see any indication that you were 70 1/2 years of age; if you're not, don't be in a rush to do anything. Talk to the financial advisor at your credit union to run your situation by them in order to get information and ideas, but try to do that as soon as possible in case they think it may be to your advantage to put any money in a traditional or Roth IRA for the 2011 tax year. You have until April 17 to put money there (for 2011) if there would be any advantage to you to do that. Ask them what advantage/disadvantage there would be in moving any money out of your TSP other than to pay off your credit cards. TSP has the lowest fee structure of anything in the marketplace and you need to remember that new Roth accounts have a 5-year "hands-off" limitation for withdrawal purposes. IRS will tax you for "early withdrawals" from your Roth account; they need to have existed for 5 years before you can withdraw money from them. You may also want to find out what TSP options you have for their new Roth accounts. Call TSP; call your old HR department; call OPM. If they know anything, they will try to help sort it all out for you. Good luck!
Angel1955  
#13 Posted : Thursday, March 29, 2012 9:26:49 AM(UTC)
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I just retired two months before I was 75 - took a cushion out which they used as my mRD for 2011 - I just rolled over my TSP and I received a check in the mail for the 2012 MRD -
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