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Federal Employees Benefits Q &A

Do you have questions about your federal employee CSRS or FERS pension/annuity or federal employee retirement planning? Concerns about your Thrift Savings Plan (TSP) account or what about federal employee pay and leave issues?

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The Q&A forum is moderated by Ed Zurndorfer -- an expert on federal employee benefits -- and a Certified Financial Planner, chartered life underwriter and chartered financial consultant in Maryland.

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kedward777  
#1 Posted : Wednesday, January 31, 2018 7:55:45 AM(UTC)
kedward777

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Hello,

I am currently age 53 with 33 years service. I am looking at 3 scenarios that may come before me:

1. Agency offers VERA, I retire at 53ish with 33 years
2. I retire at MRA with 36 years
3. I work until age 59.5

I do not like the TSP investment options. I want to transfer all my TSP money into an external IRA where I can create a CD ladder and/or buy brokered CD's at around 3.25%, and then live off only the interest, passing the principal to my heirs when I die.

How can I do this, and does it matter which of the retirement options I choose (1/2/3 above)

Ken




Ed Zurndorfer  
#2 Posted : Wednesday, January 31, 2018 8:58:05 AM(UTC)

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Shortly after you retire from Federal service, you can directly transfer all of your traditional TSP to a traditional (rollover) IRA. You will use form TSP-70 to request this direct transfer. Once the TSP funds are in the IRA, you can invest the funds in any way you want and you can withdraw the IRA funds any way you want. You must pay federal and state income tax on your withdrawn IRA funds, just like you do if you were to withdraw funds from your traditional TSP. The problem here is the IRS' early withdrawal penalty. With the TSP, you can make penalty-free TSP withdrawals if you were to retire from Federal service as early as age 55. With the IRA, you must be at least age 59.5 in order to make penalty-free withdrawals. In short, only option #3 in your listing will allow you to do what you want to do with your TSP and not pay a 10 percent early withdrawal penalty.
kedward777  
#3 Posted : Wednesday, January 31, 2018 2:20:35 PM(UTC)
kedward777

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Thank you.

If I retire before 59.5, and I then leave the money in the TSP/G fund, I understand that I can withdrawal defined amount of the TSP funds based on my life expectancy. If I go this route before I am 59.5, can I then withdrawal all the remaining TSP funds into an IRA AFTER reaching 59.5, and then build my cd ladder in the IRA?
Ed Zurndorfer  
#4 Posted : Wednesday, January 31, 2018 4:39:22 PM(UTC)

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The answer to your question is yes. Just remember that in order to use your strategy, you would have to request a direct transfer of all of your remaining TSP account no earlier than when you are age 59.5.
Peachy  
#5 Posted : Friday, March 09, 2018 9:01:02 AM(UTC)
Peachy

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Hello Ed,

Can you please verify that this is a true statement:

I was told that if you leave the fed gov before the age of 55, even under a VERA, the IRS early withdrawal penalty would apply if you took money from your TSP, and that the only way to not have a penalty is to wait until age 59.5 (if you took a VERA before age 55).

Thank you.



Ed Zurndorfer  
#6 Posted : Friday, March 09, 2018 10:45:39 AM(UTC)

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An employee who is not a law enforcement officer, firefighter, or an air traffic controller (any of whom who retires sometime after age 50 can make penalty-free TSP withdrawals) and who retires before the year he or she becomes age 55 is subject to a 10 percent early withdrawal penalty if the departed or retired employee withdraws money from his or her TSP account. The departed or retired employee will have to wait until age 59.5 to make penalty-free TSP withdrawals.
mc0111  
#7 Posted : Monday, March 12, 2018 12:17:33 PM(UTC)
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In regards to the above question, can a TSP annuity thru MetLife or making withdrawals based on life expectancy until age 59 and a half avoid the 10% penalty?
Ed Zurndorfer  
#8 Posted : Monday, March 12, 2018 3:14:24 PM(UTC)

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Payments based life expectancy that must continue until at least age 59.5 and a TSP annuity that continues forever will avoid the 10 percent early withdrawal penalty.
thanks 1 user thanked for this useful post.
mc0111 on 3/13/2018(UTC)
mc0111  
#9 Posted : Tuesday, March 13, 2018 9:22:15 PM(UTC)
mc0111

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Thanks!
Ed Zurndorfer  
#10 Posted : Wednesday, March 14, 2018 2:12:49 AM(UTC)

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You are most welcome.
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