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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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kedward777  
#1 Posted : Thursday, November 14, 2019 6:00:42 AM(UTC)
kedward777

Rank: Member

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Joined: 3/10/2014(UTC)
Posts: 26

Hello,

1) If I retire at age 56 (my MRA) with 37 years, can I do a direct transfer out of my TSP to an external IRA? I can get 3% and greater CD's in an external IRA compared tothe paltry < 2% in the TSP.

2) At my MRA, I believe I am not subject to penalties for withdrawals from my TSP, but what about if I transfer my TSP to a external IRA? Can I still withdrawal penalty free at age 56 (MRA)?

3) Can I transfer my TSP to an external IRA before I retire without penalty?

Thanks,
Ed
Ed Zurndorfer  
#2 Posted : Thursday, November 14, 2019 6:37:10 PM(UTC)
Ed Zurndorfer

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Was thanked: 153 time(s) in 142 post(s)
In answer to your questions: (1) If you retire at age 56 with 37 years of service, then you can make a direct transfer of your traditional TSP to a traditional IRA; (2) If you transfer your traditional TSP to a traditional IRA at age 56 and make withdrawals from your traditional IRA, then those IRA withdrawals are subject to a 10 percent early withdrawal penalty; and (3) If you are still in federal service and under age 59.5 then you are not allowed to make a direct transfer of your traditional TSP to a traditional IRA. Only employees over age 59.5 can make such "in-service" traditional TSP direct transfers to a traditional IRA.
kedward777  
#3 Posted : Friday, November 15, 2019 6:41:49 AM(UTC)
kedward777

Rank: Member

Groups: Registered
Joined: 3/10/2014(UTC)
Posts: 26

Thank you,

With regards to item #2, I was reading about SEPP's. After I retire at 56, if I transfer my money out of the TSP to an external IRA, it seems that I can then use a SEPP to pull money out of the IRA penalty free for 5 years.

Is this what early federal retirees (< 59.5) do routinely, who do not want to stay in the TSP? Any wisdom about SEPP's for feds?
Ed Zurndorfer  
#4 Posted : Friday, November 15, 2019 9:47:23 AM(UTC)
Ed Zurndorfer

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Was thanked: 153 time(s) in 142 post(s)
You are welcome. With respect to the SEPP, SEPP stands for separate equal periodic payments and is not a separate retirement plan or IRA. With a SEPP, a traditional IRA owner younger than age 59.5 can request a payout of his or her traditional IRA penalty-free. The payments each year are based on the IRA account balance and the IRA owner’s life expectancy. The payments must continue at least for the later of five years or the IRA owner’s 59.5 birthday. In the event this rule is violated, the IRA owner will pay a retroactive 10 percent penalty for each year payments were made. Before doing SEPP from an IRA (it cannot be done from the TSP) the IRA owner is highly encouraged to meet with a tax accountant in order the rules of SEPP.
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