VERA and 72(t)

[GPIN]

Hoping to get some information from those that may have done something similar. If an employee accepts the VERA before MRA and before 55 or 59 1/2, it looks as though they can access TSP or another IRA via substantially equal payments (SEP) to avoid the 10% penalty.

If one were to do this and say needed $20K a year, does it make sense to move about $300K from the TSP to an outside IRA at vanguard, Schwab, etc. and then take the SEP on that vs TSP. I do not want to take too much from TSP during the 5 years I'd be locked into the SEPs. Just looking for experience or suggestions from those that may have done something similar or who are well-versed in this topic.

Appreciation in advnace.

[cosmo]

Have you looked into the FERS supplement payment available with certain approved retirements. I think that a VERA may be in this category

https://www.usgs.gov/human-capital/freq ... about-vera

.https://www.govexec.com/pay-benefits/20 ... nt/400777/

[GPIN]

MRA is 3.5 years away so supplement not available for a while.

[Bubba]

MRA is 3.5 years away so supplement not available for a while.

My understanding is that VERA is only possible under 2 circumstances:

1. 20 years of service and age 50 (and older)
2. 25 years and no age requirement

I would consider accepting (2) if it weren't that I'm too young...(by a whisker).

If you are eligible for VERA, then I understood your FERS supplemental payments do start whenever you accept. Did I misunderstand?

[GPIN]

MRA is 3.5 years away so supplement not available for a while.

If you are eligible for VERA, then I understood your FERS supplemental payments do start whenever you accept. Did I misunderstand?

Am eligible for the VERA. I'll have 34 years in next week but am not at my MRA. Everything I have read is that FERS supplement will not kick in until an employee meets their MRA (57 for me).

[Aitrus]

Something to keep in mind: when one retires under VERA or even at MRA, COLA increases don't begin until you reach age 62.

[Bubba]

Something to keep in mind: when one retires under VERA or even at MRA, COLA increases don't begin until you reach age 62.

That's a pretty big one for me too. I didn't mention it, but given what happened in 2022...and what many financial gurus expect (that we're going to have another massive bout of inflation in the next year or 2), I really care for this too.

[evilanne]

Hoping to get some information from those that may have done something similar. If an employee accepts the VERA before MRA and before 55 or 59 1/2, it looks as though they can access TSP or another IRA via substantially equal payments (SEP) to avoid the 10% penalty.

If one were to do this and say needed $20K a year, does it make sense to move about $300K from the TSP to an outside IRA at vanguard, Schwab, etc. and then take the SEP on that vs TSP. I do not want to take too much from TSP during the 5 years I'd be locked into the SEPs. Just looking for experience or suggestions from those that may have done something similar or who are well-versed in this topic.

Appreciation in advnace.

See https://www.tsp.gov/publications/tspbk25.pdf TSP is set up to calculate the LE/RMD method. Technically you could set up a fixed payment with TSP using the Fixed Amortization or Annuitization method but I would recommend talking to a CPA, tax professional or financial advisor to determine the amount you would need to transfer to an IRA to get the fixed amount you desire to make sure it is done correctly, see https://www.irs.gov/retirement-plans/su ... ayments#q7.
Here is a calculator for the Fixed methods https://www.calcxml.com/calculators/72t

The LE calculation works the same as RMDs, you divide the year end balance by the factors in Appendix B (Table 1 for Single Life) of Publication 590-B https://www.irs.gov/pub/irs-pdf/p590b.pdf. The amount with LE will vary each year based on your EOY balance.

Example (assuming 4% increase in balance each year after withdrawal, factors from Table 1). Depending on your age, you can play with the ROR to determine how much to leave in TSP or move to IRA depending on what account you want to make withdrawals from

Age Balance Factor. Annual %
45 $500,000 41.0 $12,195 2.44%
46 $520,000 40.0 $13,000 2.50%
47 $540,800 39.0 $13,867 2.56%
48 $562,432 38.1 $14,762 2.62%
49 $584,929 37.1 $15,766 2.70%
50 $608,326 36.2 $16,805 2.76%
51 $632,660 35.3 $17,922 2.83%
52 $657,966 34.3 $19,183 2.92%
53 $684,285 33.4 $20,488 2.99%
54 $711,656 32.5 $21,897 3.08%
55 $740,122 31.6 $23,422 3.16%
56 $769,727 30.6 $25,154 3.27%
57 $800,516 29.8 $26,863 3.36%
58 $832,537 28.9 $28,808 3.46%
59 $865,838 28.0 $30,923 3.57%
60 $900,472 27.1 $33,228 3.69%

Warning: Be extremely careful not to deviate from whatever method you choose once you start and you must continue a minimum of 5 years or until you reach 59.5. See https://www.irs.gov/retirement-plans/su ... ayments#q9 You can make a one time switch from one of the fixed methods to LE/RMD due to change in tax law

Before 2002, some taxpayers who chose the fixed annuitization or amortization methods found their retirement account balances were being depleted faster than projected. This was because the performance of their investments did not keep pace with their withdrawals. https://www.investopedia.com/articles/r ... 112602.asp

I like the LE/RMD method as it increases most years and you don't get any COLA until 62 with FERS. In down years, you withdraw less but over all it generally increases. Using the LE method in TSP will comply with the tax laws and most brokerages with also calculate the LE/RMD for you. I don't know about either of the fixed methods.

GPIN is correct that the FERS supplement will not kick in until an employee meets their MRA and once it does kick in you are subject to the SSA earnings limit. In 2025, the Social Security earnings limit is $23,400 for those under full retirement age, meaning benefits will be reduced by $1 for every $2 earned over this limit..

[GPIN]

Thanks for the great and helpful information!