10-Step Plan for an Optimal TSP Withdrawal Strategy

Managing your TSP and alternate investment options after retirement or separation from service.

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fattony
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by fattony »

Is there a limit to the monthly payment that you can request? I don't think that there is. It looks like you can put whatever you want in the monthly payments so I think you could drain the account using monthly payments in less than a year.

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evilanne
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by evilanne »

fattony wrote:Is there a limit to the monthly payment that you can request? I don't think that there is. It looks like you can put whatever you want in the monthly payments so I think you could drain the account using monthly payments in less than a year.
Only if you retire at the year you turn 55 (50 for LEO). I don't know of any monetary limitations imposed by TSP. Since Roth was only introduced to TSP in 2012, with the 5 year and age 59.5 requirements to be qualified, withdrawing your entire balance could result in penalty in 2016/2017. Finally since most would be considered regular income, you may incur a huge tax bill for a large balance which is counter to the intent of saving for retirement.

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wwwtractor
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by wwwtractor »

After 59.5 years old you can move TSP to a Rollover IRA. Then start moving 10% per year to a Roth. That way by the time you reach the required minimum distribution age you will be all in Roth and never have to pay taxes on earnings or distributions.

A Roth account is more flexible than and IRA.
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crondanet5
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by crondanet5 »

tractor it is so good to hear from you. Can you share your plan with us?

crondanet5
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by crondanet5 »

fattony you better read the TSP rules. This is when I miss SARAH. She was so good at explaining the TSP rules.

fliegsc
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by fliegsc »

I reviewed the strategy. Although not bad, it is unnecessarily complex. From a cost performance, keeping money in TSP is best if the options available are suitable (which I believe they are, especially for a retiree). Regarding a statement above of "Never leave money in an ex-workplace 401k account," I disagree when it comes to TSP. For corporate/private sector 401.K's this advice is essentially based on not knowing the fate/future of the company and different costs and options for ex-employees; for TSP the fate of the company is essentially the fate of the US government and the controls and cost stay the same, so I am not worried.

Back to the 10-step strategy, for income purposes it is not bad to keep that money predominantly in the G fund and then have growth capitol in other funds, but that can be done effectively with L funds and without IRA/TSP transfers. Simply chose the L fund that has the right proportion of G-fund. For discussion, lets say that that is 50% G and the other 50% S/C/I. When you pull an income distribution, say monthly to meet your regular budget needs (lump sums to be covered later), yes the distribution will come 50%G and 50% others, but L funds are rebalance daily. So, the day after the distribution the account will be rebalanced to 50% G and 50% others. If none of the L funds meet your allocation needs/wants, you can always have individual funds G/S/C/I/F outside of the L fund (or instead of) and manually re-allocate them monthly and attain the same goal. This is very similar to what the 10-step is doing once every 10 years, but the daily rebalancing automatically cashes out the S/C/I funds when they perform well and buys them back when they are cheap. This is the sole feature that has me very much in favor of L funds.

Regarding lump sum distributions, say for a vehicle or vacation: Such distributions from a non-Roth retirement source are costly since if they are large enough, they will put you in a higher tax bracket and in any event will be taxed at your highest incremental tax bracket. I would hate to have to pull out $100K for a $66K motorhome (since 1/3 of the $ would go to taxes). This is why you need a Roth IRA to cover such things. If there is not enough Roth to cover such wants, it is likely beneficial to get a loan for the RV and increase income distributions just enough to cover the loan if it keeps you in a lower tax bracket.

FYI - I am 10.5 years from retirement and have been investing a lot of time lately determining how to pull retirement funds effectively (from a tax perspective). l think I am a little low on Roth-type funds and will be maxing those and converting some conventional IRAs into Roth (incrementally so as not to hit a higher tax bracket).

- Fli

crondanet5
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by crondanet5 »

fliegsc you obviously have not read the TSP rules. Also remember the higher the tax bracket the closer to becoming a millionaire.

fliegsc
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by fliegsc »

crondanet5 wrote:fliegsc you obviously have not read the TSP rules. Also remember the higher the tax bracket the closer to becoming a millionaire.


Please elaborate on which rules (its not obvious to me); I believe I'm pretty knowledgeable on most of them, but I may have a deficiency somewhere and would appreciate fixing it.

I re-read my post. Perhaps my lump sum discussion implied you could take lump sums from TSP whenever you want. I know you can only basically take two (a partial and a full, but you can get three if you take a TSP loan out right before retiring - it converts to distribution some number of months after terminating employment). Anyway, the point of that discussion is that you really want to have and use a Roth IRA if you want to pull out lump sums. And I'm already a millionaire.

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evilanne
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by evilanne »

Fliegsc made perfect sense to me, but I don't recommend loan prior to retirement, especially if you are under 59.5 and penalty applies. Crondanet has issues with withdrawal limitations that I do not share.

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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by crondanet5 »

I go back to my example of yore. Say you have $800,000 in you elect to leave in TSP. You retire and leave federal service. What do you do at age 70.5? And if you elect to receive MRDs how do you get an emergency $100,000 out of the TSP? Those are the rules I urge you to look at.

I have discussed this with Fidelity reps, and if you have the needed money in cash you can roll it out within 24 hours. Can you do that with TSP, and if yes, please list the steps.

I am not a knight trying to spear the TSP windmill. I want TSP members to be aware of TSP withdrawal restrictions and how they can best position themselves beyond age 70 and not in federal service. I am looking for answers.

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evilanne
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by evilanne »

1. At age 70.5, Required Minimum Distributions (RMDs) is exactly that and it is mandatory--not an election. You can withdraw more without penalty other than the higher taxes that would be due.
2. After taking RMD, I would access my outside savings & money market account 1st and then my brokerage account for the balance.
3. Under 59.5 you could do a partial withdrawal or rollover to IRA (takes a month) and withdraw funds from that, but this would not be an option for me since I'm not willing to take 10% penalty or additional tax impact

crondanet5
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by crondanet5 »

evil are you saying you could not emergency withdraw $100,00 from the TSP? Are you stuck with your monthly MRD and cannot access the cash balance? Is that what you are saying?

skiehawk11
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by skiehawk11 »

Withdrawing 100k from your TSP for an emergency is not an everyday scenario and it differs for everyone. For instance someone closer to retirement that doesn't have an emergency fund may need to be able withdraw money quickly from a retirement account if they don't have outside brokerage or retirement accounts.

However, individuals that have planned and have an emergency fund and several other retirement accounts would be highly unlikely to be in a situation you hypothesize cron. This would be something to talk to a qualified financial adviser about. I'd recommend someone with a CFA designation, FFS only and preferably with an accounting/finance background.

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evilanne
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by evilanne »

crondanet5 wrote:evil are you saying you could not emergency withdraw $100,00 from the TSP? Are you stuck with your monthly MRD and cannot access the cash balance? Is that what you are saying?


You: You retire and leave federal service. What do you do at age 70.5? And if you elect to receive MRDs how do you get an emergency $100,000 out of the TSP?
Me: At age 70.5, Required Minimum Distributions (RMDs) is exactly that and it is mandatory--not an election. You can withdraw more without penalty other than the higher taxes that would be due.

I'm saying that whether or not I could, that financially it would be a stupid move and therefore I would not even attempt to do so. I do not plan to ever withdraw $100K from TSP in emergency situation, a true emergency will be covered by medical, car, home or liability insurance less any deductibles. If I need more money 19 years down the road, I could set withdrawals to $10K per month (amount could be higher as long as it is above the RMD) but it would be paid out over a year. I don't know any situation that would require me to have $100K immediately. Your argument only reminds me that I do need to have a well funded emergency fund but that doesn't mean that TSP is bad--you just need to be able to manage within any limitations. Not being able to access your money immediately means you have to think about it and plan a little better. Since everything withdrawn from TSP is taxable income, it would be less of tax impact to sell assets in regular brokerage--taxed only on capital gains or take funds from outside Roth IRA.

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Winner
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Re: 10-Step Plan for an Optimal TSP Withdrawal Strategy

Post by Winner »

The info is good, but I'll do differently with my IRA instead that not invest everything in mutual fund (buy and hold). I'll looking for dividends stocks. For example, let's say that you own shares of the XYZ and like its long-term prospects as well as its share price but feel in the shorter term the stock will likely trade relatively flat, perhaps within a few dollars of its current price of, say, $30. If you sell a call option on XYZ for $31, you earn the premium from the option sale but cap your upside. You can earn more than 30% annually by doing this and personally I'll not invest more than 5% & sold if it down 20% by the closing for individual company. This way I keep the maximum lost of 1% for my entire balance. On the other hand I'll invest more if you use strategy Aitrus mentioned a lot on this website (symbol for C,S,I,&F show at the charts below)

a) XYZ shares trade flat or below the $31 strike price – the option will expire worthless and you keep the premium from the option. Repeat this as often as weekly or monthly, by using the covered call strategy you have successfully generated income (& sometime dividends) from this stock despite the share price doing nothing.

b) XYZ shares fall – the option expires worthless, you keep the premium along with dividends.

c) XYZ shares rise above $31 – the option is exercised, and your upside is capped at $31, plus the option premium. If the stock price goes above $31 you give up the upside but you’ve successfully sold the shares for a profit along with some additional income from the premium received.
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