Anyone Using the 72t Life Expectancy Withdrawal Option?

[ksmoly04]

So I've been researching federal retirement, and wanted to see if anyone here had retired prior to their MRA and/or Age 59.5 and has elected to access their TSP fund through the 72t provision that makes substantially equal periodic payments?

In other words, who's the youngest federal retiree? Anyone under 50?

[onerepmax]

My son started just before his 21st, so he'll be eligible at 46. He's maxing TSP and planning to go then, but that's a long way off...

The secretary in my office started at 18 and is still working at 55ish.

[tspcentera]

I'm not in this boat yet, but it's my plan. I'll be eligible in 15 years when I'm 47. It definitely sounds feasible. You might have better luck contacting someone who has gone through this in the Financial Independence community. Try the financial independence subreddit or the ChooseFI Facebook group. Maybe even the Mr. Money Mustache community. Also, surely in the Military or Law Enforcement communities retiring before age 50 is a common thing.

Good luck!

[evilanne]

I'm planning on withdrawing from TSP next year using life expectancy rules, which is equivalent to 72t or SEPP. I retired under VERA, so that is the only way I can withdraw without penalty. What makes everything complicated is that when I reach my MRA in 2020, I will start receiving the supplement. With current system, once started you have to continue for 5 year or age 59.5 (which ever is later), so when the Supplement kicks in, I cannot adjust the TSP payment for 3.5 years. I recently did a partial withdrawal to reduce balance and plan to eventually convert the rollover to Roth if that option is still possible when taxes make sense.

[rcozby]

I retired at 55 under vera, and have been taking monthly payments ever since. Not sure why anyone would choose 72t over monthly payments, since monthly payments can be adjusted annually.

[ksmoly04]

I retired at 55 under vera, and have been taking monthly payments ever since. Not sure why anyone would choose 72t over monthly payments, since monthly payments can be adjusted annually.

Its more a function of being able to "retire" even earlier than normal. 72t would allow one to access their TSP, say at age 45, if they had socked enough away and made enough gains and had a taxable account to supplement.

[Jesrich]

I'm planning on withdrawing from TSP next year using life expectancy rules, which is equivalent to 72t or SEPP. I retired under VERA, so that is the only way I can withdraw without penalty. What makes everything complicated is that when I reach my MRA in 2020, I will start receiving the supplement. With current system, once started you have to continue for 5 year or age 59.5 (which ever is later), so when the Supplement kicks in, I cannot adjust the TSP payment for 3.5 years. I recently did a partial withdrawal to reduce balance and plan to eventually convert the rollover to Roth if that option is still possible when taxes make sense.

I've read conflicting information about using the "substantial equal payments" method to withdraw early from your 401k to prevent the penalty. First, I've read what you stated, which is you cannot adjust the payment for 5 years, or until 59.5, which ever is later. The other thing I've read says that you can adjust that payment annually. So, I'm not sure which is correct. Does anyone have information on this? My plan is to be financially free by 50 and to be able to withdraw at that time.

Thanks,
Jesrich

[mindofmush]

The TSP has an advantage over a 401k in that a FED employee who retires at age 55 (or later) can withdraw from their TSP without the under 59.5 10% penalty.

HR2146 (effective 2016) allows special FEDs (LEO,FF,ATC) who retire at age 50 (or later) to withdraw from their TSP without penalty.

FEDs (who aren't special) that retire before age 55 have to use the 72(t) or SEPP rules to withdraw from their TSP without penalty.

[evilanne]

I've read conflicting information about using the "substantial equal payments" method to withdraw early from your 401k to prevent the penalty. First, I've read what you stated, which is you cannot adjust the payment for 5 years, or until 59.5, which ever is later. The other thing I've read says that you can adjust that payment annually. So, I'm not sure which is correct. Does anyone have information on this? My plan is to be financially free by 50 and to be able to withdraw at that time.

Thanks,
Jesrich

TSP uses the Life Expectancy (LE) rules from the IRS, which is similar to the RMDs at 70.5 but with a different table. The amount is automatically adjusted each year based on the balance in your account on 31 Dec, divided by your age factor for that year. The age factor decreases each year so if your account balance remains the same or goes up, your payment should also go up.

TSP's Retirement income calculator uses LE (second set of columns) which will show you how it changes based on your projected rate of return--the shift at age 70.5 is due to a change in the tables used for LE vs RMDs. https://www.tsp.gov/PlanningTools/Calcu ... lator.html Note: The actual amount you recieve each year could increase or decrease based on increase/decrease in your account value during the year.

If you use 72(t) you can use the LE method or another approved method, which may give you a little more flexibility; but with the current low interest rates, my understanding is there isn't that much difference between the options. I don't know the rules for the other approved methods--you would need to research or consult with your financial advisor, CPA and/or tax advisor. In an IRA, you would have the flexibility of taking quarterly, semiannual or annual payments rather than monthly payments in TSP.

Note: In the year you start, TSP will calculate the annual amount and divide by the number of months remaining in the year. If I submitted my paperwork to start taking payments this year with the first payment in November, I would get 2 payments, each 50% of the calculated amount. Those who have other income during the year may want to consider the tax impact when starting payments or making a partial withdrawal.