Post-retirement withdrawal question

[mindofmush]

Back in the beginning of IRAs, there was no direct transfer, you were responsible for getting your 401k/IRA money into another IRA within 60 days by calling it a "rollover" and thereby delay paying tax until later withdrawal. Some people made money by short term investing their rollovers frequently and not paying any taxes on their ill-gotten gains by stuffing those gains into their IRA. Uncle Sam punished everybody by requiring financial institutions to withhold 20% for taxes on rollovers to discourage all but the smart traders. The good and obedient (non-trader) 401k/IRA holders complained that they couldn't afford to lose 20% of their retirement account with each transaction, so the "direct transfer" was created for those that promised not to day-trade with their retirement money.

It's confusing to refer to both a taxable event (rollover) and a non-taxable event (direct transfer) as a rollover.

[evilanne]

You really should get that ironed out with TSP because they use transfer & rollover almost interchangeably. https://www.tsp.gov/PDF/formspubs/tsp-536.pdf seems to be written with the intent of discouraging withdrawals/transfers as their chart indicates that almost everything has withholdings. The tax brochure only has one paragraph that indicates how you can transfer and avoid tax withholding (starting on bottom of page 4).

"If you choose to have the TSP transfer part or all of your eligible rollover distribution, the TSP will make the payment directly to your traditional IRA, Roth IRA, or eligible employer plan.... The transfer of your traditional (non-Roth) balance to a traditional IRA or eligible employer plan will not be taxed in the current year and no income tax will be withheld. Your payment will be taxed when you withdraw it from the traditional IRA or the eligible employer plan."

The only good thing about it are the references at the beginning: "You can find more specific information on the tax treatment of payments from retirement plans like the TSP in IRS Publication 575, Pension and Annuity Income, IRS Publication 590, Individual Retirement Arrangements (IRAs), and IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits."

[mindofmush]

I agree with you that the TSP forms & guides are confusing and the IRS forms aren't any better. I just hope the TSP uses a tech writer instead of a law student to write the new changes into the forms and guidance booklets.