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DK_in_CO  
#1 Posted : Thursday, February 09, 2012 12:59:38 AM(UTC)
DK_in_CO

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Here is an Excellent FedSmith Article that addresses your TSP options after retirement.
 

Proud to Be an American

By Carol Schmidlin

http://www.fedsmith.com/article/3289/proud-be-american.html

What do I do with TSP when I retire? This is one of the most sought out questions we get from our clients.  So let’s explore the three options for turning TSP into income.  (1) Set up monthly withdrawals from TSP, (2) Create an annuity with TSP through MetLife, or (3) Rollover TSP to an IRA.
 
Anyone want to weigh in on which option is the Best?
Tryno  
#2 Posted : Thursday, February 09, 2012 2:40:30 AM(UTC)
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Well different people have different needs, so I'd still say that no one way is best for everyone.  In some a combination might be the best choice.

I think you have look not just at the dollars and cents you can get from the various options but which one you and your spouse are comfortable with.  We decided on an IRA with a financial advisor.  I think I could probably handle the account (if I wanted, did fairly well in TSP) but if something happened to me my wife would be lost.  That's what I pay the financial advisor for, he's my wife's insurance if I drop dead.  Now since I was 58 when I retired I can't draw from the IRA until age 59.5 so we left enough in the TSP to cover that time period.  The way we have set up would be a lousy idea for some but I think it's best for us.   Hopefully when the time comes we will be leaving a decent sum to our son and his family but until then we're going to enjoy life.

Personally I think buying an annuity with the rates the way they are is a bad deal BUT some people need the security of the set income for life. For them the security might be worth missing the higher income opportunities.   Think of someone maybe a woman retiring and knowing her husband likes to play the horses a little too much.  She might be better off with the annuity so that hubby can't touch the nest egg except what comes in monthly. 

 

 

 

 

rev1ddv2  
#3 Posted : Thursday, February 09, 2012 3:59:19 AM(UTC)
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What is the best way to take out or transfer your TSP funds?  

We are considering moving ours, but don't know where to start.  Should we put it in a Roth account?

If it's transferred outside of TSP are taxes taken out?  Thanks for any info.


Tryno  
#4 Posted : Thursday, February 09, 2012 5:13:59 AM(UTC)
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If you roll it directly to an IRA, no taxes are withheld.  Better ask someone else on the Roth part, I thought Roth accounts were for after tax money and the TSP is before tax so I dont how that would work. 
Fed1969  
#5 Posted : Thursday, February 09, 2012 9:40:36 PM(UTC)
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If you roll over to an IRA, make sure it is a direct roll over to avoid taxes.  The TSP has less options than an IRA.  It is easier to lose your money in an IRA, but you could also make more money.  Some IRAs have fees.
DK_in_CO  
#6 Posted : Thursday, February 09, 2012 10:30:52 PM(UTC)
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rev1ddv2 wrote:
What is the best way to take out or transfer your TSP funds?  

We are considering moving ours, but don't know where to start.  Should we put it in a Roth account?

If it's transferred outside of TSP are taxes taken out?  Thanks for any info.


 
All you need to know about TSP Rollovers including Roth accounts are addressed at the following site.
 
CONVERTING YOUR TSP TO A ROTH IRA
 
Excerpt from the article regarding taxes ...
 
Roth IRAs are based on after-tax contributions. So, if you transfer your tax-deferred TSP contributions and earnings to a Roth IRA, you must pay income tax on the entire amount of the transfer for the year of the transfer. Future earnings on the Roth IRA will be exempt from taxes if you meet the criteria for withdrawing from a Roth.
 
Hope this is helpful.
 
Fed1969  
#7 Posted : Friday, February 10, 2012 12:57:55 AM(UTC)
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This varies from individual to individual.  If you have little to no money management skills, buying an annuity may make sense.

Some will want to live it up ASAP, since they don't know what the future brings.

Having just retired late last year, I have not done anything with my TSP.  I am considering various options such as rolling some into an IRA where I have more flexibility.
rev1ddv2  
#8 Posted : Friday, February 10, 2012 4:09:43 AM(UTC)
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Thanks for all the tips and suggestions.  I will read the links provided.  Then try to figure out what is best for me and my husband.

Knight  
#9 Posted : Friday, February 10, 2012 6:04:12 AM(UTC)
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It all depends on what you currently have or want. I have money going into my TSP now but I used to do IRA's and I have a basic Vanguard Mutual Fund account.
 
So I plan to leave my TSP alone and do option 1 on it when I leave the GS world. Pull from the IRAs as needed and tap the Vanguard anytime required (including now if I have to)
Angel1955  
#10 Posted : Tuesday, February 21, 2012 6:26:37 PM(UTC)
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In talking with TSP yesterday got that friendly money about getting my money out - I did get one thing really clear - I thought TSP annuity was when you left your money in TSP = I learned that it is called the minimum distribution requirement - NOT a tsp anuity - she told me how much my distribution would be for 2012 - and if I make my monthly withdrawals OVER the yearly distribution I would not have to pay tax.??That I am not sure of - as I took a hardsip wihdrawal to cover my interim pay and any emergencies and I paid tax -
I do not want to get into figuring stocks, bonds etc. I am over 70 -
martyb  
#11 Posted : Wednesday, February 22, 2012 8:44:21 AM(UTC)
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There is no IRA that will cost you such a small amount for management of your account as the TSP.  With TSP, you're paying somewhere around .017-.025 for keeping your money there.  Vanguard, which is among the least expensive for IRA's is charging me .25 for holding my Roth IRA.  That's a big difference, and Vanguard is considered cheap.  Many people are paying 1% or more.  As far as I'm concerned, there's no reason not to leave it in the TSP.  My wife knows nothing about money management either.  However, all she has to do is tell the TSP to send her 4% of the balance every year, and the money can just stay in either the G fund or the F fund.  She won't run out of money, and even if she does, she'll still be collecting my CSRS pension, my military reserves pension, and her own Social Security.  All that, on top of my life insurance payout, so why would I want to pull my money out of TSP and put someplace that charges me more just to keep it there?  I trust TSP to be around for the long haul more than I trust any "Financial Planner".  Don't forget, they're going to get a cut of your money in addition to whatever firm you park your $$ with.  It's gonna cost you more than you realize, but best of luck.  Oh, did I mention that with TSP you have no-penalty access to your money from age 55 on?
martyb2012-02-22 19:08:39
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Tryno  
#12 Posted : Wednesday, February 22, 2012 9:47:49 AM(UTC)
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To each his/her own martyb but I pay 1% period (actually a little less).  No other charges.  It's worth it to me but not everyone wants to go that way and that's fine.   
martyb  
#13 Posted : Wednesday, February 22, 2012 11:06:02 AM(UTC)
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I agree, it's an individual thing.  I would just hate paying $1000 per $100,000 just to let them hold my money.  That's a full 1% additionally that your investments have to achieve simply to keep up with inflation.  Best of luck to you.
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kgkistari  
#14 Posted : Wednesday, February 22, 2012 3:45:40 PM(UTC)
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I left my $ in the TSP and I'm taking some out each month.  I calculated how much I'd need now and how much I can reduce this by when I collect Social Security.  And, if you pay attention to the market, it's not too hard to know when to play and when to hide in the G fund. 
Angel1955  
#15 Posted : Thursday, February 23, 2012 11:14:34 PM(UTC)
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Do you have money both in the G fund and stock??? I am over 70 - and have $50,000 available in TSP after taking out money last year when I was off recuping last year, but still working.
spencerm6  
#16 Posted : Friday, February 24, 2012 5:18:07 AM(UTC)
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There are many that encourage people to rollover their TSP into an IRA.  Usually the reason is so that there are more 'options'.  True, there are more options for those who are brokers that wish to earn big commissions off of all the money locked away in the TSP.

So sometimes it is in your best interest if you are self directed and spend time reviewing costs.  In other cases it may really be in the best interest of someone else....be careful!


See the invisible; Feel the intangible; Achieve the impossible!
dmaceld  
#17 Posted : Friday, February 24, 2012 10:20:31 AM(UTC)
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Two very, very, important things to keep in mind about TSP restrictions. First, you can make a partial lump sum withdrawal ONE TIME ONLY from your TSP account, and it must be done BEFORE you begin monthly withdrawals. What this means is if you begin monthly withdrawals from your TSP and you suddenly have a need for a large cash sum you MUST take out all the money from your TSP if you don't have that sum available elsewhere.

The best way, IMO, to avoid this problem is to make a partial withdrawal making a direct transfer to a traditional IRA with someone like Vanguard. You will then have that account available as an emergency fund without jeopardizing your TSP. That's what I did when I retired in 2005. I ended up having to use my Vanguard fund to pay for construction costs of my house when the market crashed as I was finishing the house and all of a sudden could not get a mortgage large enough to cover all the costs.

The second thing to keep in mind are IRA transfer restrictions after you start monthly withdrawals. I decided to change my monthly withdrawal so that part came to me as income, and some went to an IRA. This way I could rebuild an emergency fund after having to wipe out my Vanguard fund. If you do this the withdrawal amount has to an amount that will draw down the TSP fund in 120 months or less. This is based on the TSP value at the start of the withdrawal amount and is not modified later. You also must pay a mandatory 20% Federal income tax withholding.

Taking this into consideration the TSP, all in all, is one of best, if not the best, retirement investment accounts in the country. Yes, some managed funds do better over a few year time periods, but overall the TSP has done better than most, and nearly as good as the best. Plus, the downside risk is about as low as you can find anywhere.

My recommendation is stick with the TSP, but rollover an emergency fund to a readily accessible account before you start withdrawals.

The monthly fixed withdrawal is, in my and the majority of annuitants opinion, the best option. You can change it once per year to fit changing financial needs. By using that option I was able to begin to build a new emergency fund, tax free.

In my opinion a roll over to a Roth account is not a good idea, solely based on tax consequences. If you really want to do it stop your social security benefits and minimize as much as possible your other income. The massive tax liability from a huge TSP withdrawal can really punch a hole in all the rest of your income. Social security benefits become taxable when your AGI exceeds something like 30 to $40k. When you pass that threshold you pay an effective tax rate upwards of 28% (assuming your tax rate for other income is at the 15% rate).

Hope this gives you something wothwhile to consider.



MMOB  
#18 Posted : Friday, February 24, 2012 10:30:00 AM(UTC)
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martyb wrote:

There is no IRA that will cost you such a small amount for management of your account as the TSP.  With TSP, you're paying somewhere around .017-.025 for keeping your money there.  Vanguard, which is among the least expensive for IRA's is charging me .25 for holding my Roth IRA.  That's a big difference, and Vanguard is considered cheap.  Many people are paying 1% or more. 

That may be true if you want to buy mutual funds in an IRA, or pay someone to manage your account, but there is no cost to simply transfer money from TSP to an IRA.  And if you were to purchase individual stocks with your IRA money, then you could end up paying significantly less than the .025 that TSP charges.  For example, I could move my TSP to my Schwab IRA and then purchase 100 shares of AAPL for a total of $522,000.  The cost for this transaction would be a grand total of $8.95.  There would not be any other account fees of any type whatsoever.  Keeping over half a million dollars invested in TSP would incur significantly higher fees than that.

Now of course I am not recommending that anyone rolloever their TSP into an IRA and invest the entire amount in the stock of a single company.  I am merely pointing out that you can't make a blanket statement that keeping your money in the TSP will always cost less than rolling it over into an IRA. 

FlatBroke  
#19 Posted : Friday, February 24, 2012 1:54:13 PM(UTC)
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martyb should have specified that he meant an IRA holding mutual funds. One may hold stocks in an IRA and with the right broker incur no stock trading or other fees. The downside of course is that there are several caveats. Holding stock in a single company or even a dozen company may not provide adequate or proper diversification that one may find in the TSP or similar index mutual funds. And anyone moving their TSP to an IRA at retirement would normally hold some bonds or bond funds as part of a diversified portfolio. Selecting individual bonds leads to the same diversification problem as holding stocks and is frankly a bit of a chore that's likely not many people's cup of tea. Which leaves us with bond funds which have expense ratios higher than the TSP.

So: "there is no diversified IRA that will cost you such a small amount ... as the TSP." As a practical matter I have no issue with martyb's statement.
martyb  
#20 Posted : Friday, February 24, 2012 9:42:48 PM(UTC)
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Yes, I was talking about an IRA with similar holdings as one's TSP account.
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