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TSP

Administered by the Federal Retirement Thrift Investment Board, this defined contribution plan for federal employees has roughly 4,614,874 participants, and over $358 billion in assets under management. Ask your TSP questions and post related topics here.

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GordonG  
#1 Posted : Monday, August 31, 2020 8:38:21 AM(UTC)
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I'm 62 and newly retired.

So new that I haven't been contacted by TSP so I can begin withdrawing from my TSP.

My question is in what the life expectancy calculator shows.

My input to the calc was I wanted to start the W/D at 62 and expected to live to 90.

What it reads is a disbursement of (X dollar amount) which slowly increases up to age 72.

At that age there's a roughly 40% drop in the disbursement and at that point the disbursement starts creeping back up again.

The question...

Can I do ANOTHER re-calculation at age 72 so as I don't experience that 40% drop?

The numbers right now are all based upon calculating my life expectancy at 62.
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EagleDog  
#2 Posted : Monday, August 31, 2020 9:50:33 AM(UTC)

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You could just choose regular Monthly payments (you choose the amount). You can change/adjust them every year (or even month).

There were some rule changes announced last month that make Life-Expectancy payments more flexible:

Restriction to be lifted on starting and restarting installment payments based on life expectancy
Jul 29, 2020

The FRTIB is permanently changing the rule that prevents you from starting installment payments based on life expectancy if you have previously received installment payments. Beginning in January 2021, all TSP participants who are eligible for installment payments may elect to receive payments based on life expectancy whether or not they previously started and then stopped installment payments. This means that if you are currently receiving life-expectancy payments, you may now stop them, knowing that you will be able to restart them next year. (You will not be able to restart them in 2020, but you can always use other withdrawal types for which you’re eligible.) This is a significant rule change, especially if you currently receive life-expectancy payments for the purpose of receiving required minimum distributions (RMDs) and want to temporarily suspend those payments while RMDs are waived in 2020. To do so, log in to My Account now and select Withdrawals and Changes to Installment Payments to stop your payments. To restart them in 2021, log in again and start a new transaction to request installment payments based on life expectancy. Please disregard any TSP materials that state the old rule, including instructions you may see when using the online tool to stop payments. We will update them as soon as possible.

Important Note: If you started receiving life-expectancy-based installment payments before the age of 55 and:

1) you are under age 59½ now

OR

2) it has been less than five years since your payments started,

then stopping your payments now could have tax consequences that are mandated by the Internal Revenue Code and are not eliminated by this FRTIB rule change. Visit irs.gov or consult a tax advisor for more information.

https://www.tsp.gov/plan...llment-payments-2020/Jul 29, 2020
GordonG  
#3 Posted : Monday, August 31, 2020 10:29:56 AM(UTC)
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Thanks for the information.

What stood out after I did the calculation was about an extra $100,000 at 90 years old using the life expectancy vs. set dollar amount.

That's with using a 5% rate of return.

Again...thanks pal.
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EagleDog  
#4 Posted : Monday, August 31, 2020 12:00:48 PM(UTC)

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I remember using the TSP life-expectancy calculator years ago (it was much better/easier back then).
Back when I was *hoping* to retire at age 50 on a VERA :)

I believe the payments were stretched out until I was 114 (IIRC).
I was hoping a little more of the money would be up front (not expecting/needing any money past age 100).

Unfortunately, the payments are based on IRS life-expectancy tables/guidelines.
GordonG  
#5 Posted : Sunday, September 6, 2020 5:56:19 AM(UTC)
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I received my letter yesterday from TSP letting me know that they were notified by OPM of my separation from federal service.

Reading the documents, I caught one thing that you posted above but I had overlooked.

The tax consequences of starting the life expectancy and stopping within 5 years.

The accompaning literature mentioned that if you stop the life expectancy within 5 years there's a 10% tax penalty on the payments you previously recieved. What a shock that must be for someone who has had that happen to them. That is so screwed up.

What does it matter to the IRS what I do with my money?

Guess they consider it their money!
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roger.d  
#6 Posted : Sunday, September 6, 2020 7:35:49 AM(UTC)
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Are you sure the 10% penalty is not based upon early retirement?

https://www.fedweek.com/...withdrawal-penalty-myth/

Edited by user Sunday, September 6, 2020 7:36:32 AM(UTC)  | Reason: spellcheck

TheRealOrange  
#7 Posted : Tuesday, September 8, 2020 3:19:02 AM(UTC)
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Originally Posted by: roger.d Go to Quoted Post
Are you sure the 10% penalty is not based upon early retirement?

https://www.fedweek.com/...withdrawal-penalty-myth/

That could be true if he separated/retired before age 55. But, there are also special rules related to receiving periodic payments based on life expectancy. Here is the information from the TSP pamphlet:

Early Withdrawal Tax Penalty

Participants who separate from service before the age of 55 and choose to receive installment payments may be subject to a 10% early withdrawal penalty. Installment payments based on life expectancy are an exception to the rule. But the penalty can be applied retroactively if you do any of the following within five years of beginning your payments or before you reach age 59½:

• stop your life-expectancy-based payments
• switch them to payments of a fixed dollar amount
• withdraw money in addition to your life-expectancy based payments

Doing any of those things in that period of time will make you liable for the penalty tax on the payments you previously received.

I think the rule is based on the premise that the recipient has changed the nature of the payments. By taking any of those three actions, the payments are no longer considered to have been based on life expectancy. Therefore, they no longer fit into the life expectancy exception.
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GordonG on 9/8/2020(UTC)
GordonG  
#8 Posted : Tuesday, September 8, 2020 7:40:42 AM(UTC)
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Thanks TRO.

I appreciate your input.

Guess what?

I just saw ANOTHER potential issue that I overlooked that I just noticed in TRO's post.

Withdrawing money in ADDITION to having the Life EXP also incurs a tax penalty.

DAMN!!

I mean I don't plan on taking money out but that's another issue I didn't know about.

Hahhahahahaha...holy hell.

Now I'm concerned that I might get a tax bill if I just LOOK at my TSP account!!

And for anyone who may have missed it I'm 62.

Since we're here...any hidden landmines if I just do your good old run-of-the-mill fixed amount W/D?

You guys are great.

Thanks.

I Love Retirement!!!
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TheRealOrange  
#9 Posted : Tuesday, September 8, 2020 7:57:30 AM(UTC)
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Originally Posted by: GordonG Go to Quoted Post
Since we're here...any hidden landmines if I just do your good old run-of-the-mill fixed amount W/D?

When I researched this a while back, I did not see the same issues with regular installment payments. Like payments based on life expectancy, installment payments that will last for 10 or more years are considered to be periodic payments and will result in federal tax withholding by TSP. I did not see anything that would indicate that changing the installment amount or taking other types of distributions would result in the 10% tax penalty. Since you are over the age 55 requirement, your withdrawals should be penalty-free. There are other issues, as is typical, so you should take a close look at this linked TSP brochure.

https://www.tsp.gov/publications/tsp-780.pdf
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GordonG on 9/8/2020(UTC)
roger.d  
#10 Posted : Tuesday, September 8, 2020 7:41:33 PM(UTC)
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Is I knew you were past the MRA, I did not think there would be any type of "penalty" for withdraws. But, I am not an expert on the subject.

It seems to me that any penalty would be for those that did not reach a MRA/time in service mile stone.
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GordonG on 9/9/2020(UTC)
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