Post-retirement withdrawal question

[henrysmom]

Good afternoon! I would like some clarification (and advice) regarding my post-retirement withdrawals.

I will be retiring in a year and will be 60 years old. I have both a Traditional and Roth TSP. My plan (my desire!) is to somehow withdrawal small amounts, whether based on an annual or monthly election to live on. I would like to withdraw this from just my Traditional account and leave the Roth alone for a while.

Question, is it true that I have to take these withdrawals equally from both Traditional and Roth? I do not have any outside IRAs, although I do have a sizable taxable account at Vanguard. I could open IRA if necessary.

Can you please give me some advice? I didn't see that the bill passed today addressed this. FWIW, I now max out my TSP + catch up, but only into Roth. Thanks!

[mmmmmbeer]

Yes... withdraws have to be 50/50, regardless of the balance in each.

My plan to get around this was to open a Roth IRA to transfer all my TSP Roth balance out to TSP into that IRA. Thus, it should leave me only my Traditional TSP for withdrawls.

[evilanne]

Things may change in the future based on the Modernization Act. Check with TSP on the percentage (see https://www.tsp.gov/PDF/formspubs/tspbk02.pdf) , I think it is currently proportional based on the balance in each (not necesarily 50/50) e.g. if you have a total $1M and $400K in Roth, 40% of your withdrawal amount would be Roth & 60% Traditional. So if you needed $1,200 per month, you would need to request ($1200/60%) $2000/month and select the option on the withdrawal form to transfer the Roth portion ($800) directly to your outside Roth account. Hopefully they will get rid of the proportional requirement based on the new legislation that passed as it would allow you to keep more of your money in TSP with less hassle.

For Partial Withdrawal or Full Withdrawal see TSP Forms 70 or 77 Section XII. TRANSFER INFORMATION FOR ROTH BALANCE Forms https://www.tsp.gov/forms/civilianForms.html

[mmmmmbeer]

I think proportionately means 50%/50%:

https://www.tsp.gov/PDF/formspubs/tsp-536.pdf

If you have both a traditional (non-Roth) and a Roth balance in your TSP account, any withdrawals you make will be paid proportionally from each balance.

Example:

TSP account balance = $10,000; participant chooses to make a full withdrawal.

Traditional portion of balance at time of withdrawal = $5,000 (50% of total TSP account) Roth portion of balance at time of withdrawal = $5,000 (50% of total TSP account)

Withdrawal election:

Single Payment = 20%
Life Annuity = 0%
TSP Monthly Payments = 80%

Result:
Single payment = $2,000, comprised of $1,000 (50%) traditional money and $1,000 (50%) Roth money.

Monthly payments = $8,000.

Each monthly payment will be comprised of 50% traditional money and 50% Roth money.

Note: Be aware that if you receive a payment from an account that has both taxable and tax-exempt contributions, your distribution will be paid proportionally from taxable and nontaxable amounts. Additionally, any payment from your Roth balance will be paid proportionally from your Roth contributions and earnings.

[evilanne]

The example indicates 50% in the account balances, which is extremely unlikely since Roth has only been around for 5-6 years, especially for someone contributing the max. If someone had only 10% in Roth, it certainly would not make sense to take 50% of any payment or withdrawal from that account. Its not an issue that I have to worry about but I definitely recommend that anyone preparing to make a withdrawal call TSP to make sure and get clarification prior to filling out the Forms to make sure it works as anticipated.

[mindofmush]

I think proportionately means 50%/50% when your account balance has equal proportions of Traditional and Roth.

If your TSP balance is $700,000 Traditional and $300,000 Roth then a $1000 withdrawal will be $700 from Traditional and $300 from Roth for a 70%/30% proportion.

[mmmmmbeer]

I think proportionately means 50%/50% when your account balance has equal proportions of Traditional and Roth.

If your TSP balance is $700,000 Traditional and $300,000 Roth then a $1000 withdrawal will be $700 from Traditional and $300 from Roth for a 70%/30% proportion.

I thought that at first too, but if that's true they gave 3 of the most confusing, worthless examples imaginable.

[mmmmmbeer]

Ok so this article clarifies it.. it is percentage proportional for withdrawls. Unfortunately.. it sounds like, if you leave your Roth balance in there to get monthly payments it's going to ne taxed again, cause TSP doesn't diferentiate the funds when taxing it.
https://www.google.com/amp/www.fedweek. ... -trap/amp/

[mindofmush]

It would have been nice if the new TSP withdrawal rules allowed pulling out just Roth money or just Traditional money but that pro rata (proportional) rule wasn't listed in the changes but is listed on the appropriate forms:
TSP-77 (Partial Withdrawal)
SECTION II. You may withdraw $1,000 or more. Use a whole dollar
amount only. Note: Your withdrawal will be disbursed pro rata (i.e.,
proportionally) from any traditional (non-Roth) and Roth balances
in your account. If your vested account balance is less than $1,000,
submit a full withdrawal request using Form TSP-70.

TSP-70 (Full withdrawal, monthly,annuities,etc)
If you have both a traditional (non-Roth) and a Roth balance in your
TSP account, your withdrawal will be paid proportionally from
your traditional and Roth balances for each withdrawal option that
you select.

The forms will have to be edited due to the new rules but it will still be a hassle to get a TSP Roth balance into a Roth IRA and get a TSP traditional balance out and back into the TSP.

Download and read the forms for the exact confusion you're looking for, frankly I think it will become more confusing before it gets better but heh, we're the govmint!

[mindofmush]

The TSP won't tax your Roth withdrawals according to both TSP-70 & TSP-77

[BigDon]

LOL.

[onerepmax]

FFS! It seems like it would be worth it to roll/convert it all to a private Roth IRA in one fell swoop. Pay the hit and move on.

Ata minimum, it has me thinking stay traditional in TSP and rollover the Roth TSP to Roth IRA, ASAFP.

That is doable, right? I don't see any instruction for rolling out of TSP in their site.

[evilanne]

A rollovers is not a taxable event but a conversion (traditional to Roth) is. Based on your account balance a conversion could be a significant hit and based on recent proposals for tax reform, congress could eliminate our ability to do conversions in the future.

Although designating which money to withdraw is not specifically addressed, I believe this will be included in any change resulting from the modernization act.

[mindofmush]

It's important to keep your terms straight because, like evilanne said, the tax consequences for a "rollover" are different from a "conversion".

Even a "rollover" can become a taxable event if you screw up your request. If you request a million from your account and you don't check box III Direct Transfer, the TSP sends you only $800,000 (20% withholding). You now have 60 days to deposit a million into a traditional IRA to avoid paying income taxes now on your million dollar "rollover", but you don't have $200,000 cash sitting around so you deposit $800,000 into your IRA and pay income taxes on $200,000 (that you didn't receive and you have to pay taxes on it because you didn't receive it)

Always call it a "transfer" or "direct transfer", never a "rollover" (unless you have a plan to make lots of money in that 60 days with your money)

[evilanne]

I like the term rollover, but always recomend a direct trustee-to-trustee transfer when I use it. Any time the money goes through your hands, TSP will withhold taxes for Traditional funds (maybe penalty for Roth, if early distribution). Any time they send the money to the account holder, it is considered a distribution and individual has to do something in order to avoid taxes as mindofmush points out above.

When in doubt, see https://www.tsp.gov/PDF/formspubs/tsp-536.pdf You have to read it carefully as it may be confusing.