Thrift Saving Plan Question

**Like2Plan** · 08-09-2008, 09:16 PM

Originally posted by questions View Post

I retired from Federal Service four years ago and have $325,000 in the TSP account. I am 68 and my wife is 58. I am told I have to withdraw this sum when I reach 70 1/2 in two years time.

Are you sure you have to withdraw the entire amount or do you have to start taking minimum required distributions?
In my opinion, TSP has very limited options for taking distributions.
1. You can cash out the whole account--but, you would pay ordinary income tax on the entire amount. Probably not a good idea. Or, you could do a direct rollover of the entire account into an IRA.
2. You can take a 1 time partial withdraw or 1,000.00 or more as long as you have not made an age based in service withdraw (at age 59.5 or older) while employed. This partial withdraw can be rolled over into an IRA.
3. You can set up an annuity (for which there are several options)
4. You can set up "substantially equal payments" based on a dollar figure or your life expectancy.

Basically, once you've made one of the elections you can't change them. You could do a combination of a 1 time partial withdraw and set up an annuity or set up equal payments.

Even if you roll over to an IRA, you are going to have to start taking minimum required distributions or the IRS really penalizes you. But, I believe the IRA option will give you more flexibility in taking the money out. If you have an unexpected larger expense at some time, you can get the money as you need it from the IRA.

link to main TSP web site
1. click on forms and publications
2. click on publications
3. click on booklets
4. click on Withdrawing Your TSP Account After Leaving Federal Service

Originally posted by questions View Post

The second question: is it a good idea to pay back my Social Security benefits and reapply for the benefits at my current age? The SSA has told me that I would have to pay them back about $110,000. But my benefits (presently $1600 per month, receiving since November 2002) will increase by about 75-percent. I would have to withdraw this money from my present TSP account. How would I have to handle both previous and future taxes? Is it a good idea to withdraw money from TSP account and pay back the SSA, to jump start my SSA benefits

I appreciate your help.

I can't answer if this is a good idea or not. I assume you have looked at how long it will take you to recoup the money?
If you use the TSP (or IRA) funds to pay them back, you will have to pay taxes on the $110,000 (in addition to whatever else income you receive in the same tax year). Maybe you could consult with an accountant to see what you could do to minimize the tax burden if you did that (I'm wondering if income averaging might be an option?). But, you may have unintended consequences. If you subscribe to part B of Medicare you may have to pay more as it is based on your income: Part B Medicare costs

**DebtFreeMe2** · 08-10-2008, 10:43 AM

I would definitely talk to an accountant or a tax professional who knows what they're doing in the area of retirement savings and taxes.

Some of these folks can cost a bit up front, and may take a little time to get in to see, but you often get what you pay for, and getting good advice to begin with can save you many thousands on the back end.

If your looking for a good tax professional in your area you may want to look at www dot daveramsey dot com and look at their "endorsed local provider" for taxes. They have some very good standards that folks have to meet before being allowed into their list.

I have used the real-estate agent that they referred me to and he made me money on my first house and saved me a lot of money on our current one. So I've had very good luck with them. Haven't had a need for the other services yet, but when I do that the first place I'll look.

Good luck,

DebtFreeMe2

**cooliemae** · 08-10-2008, 11:49 AM

To answer the first question, you have to have begun to take money out of your TSP account by age 70.5, but you don't have to take all the money out. This is true for all IRAs, so you won't get anywhere by rolling the money over to an IRA.

As for the second question, I would definately encourage you to seek out an accountant that can help you decide what to do.

**Ima saver** · 08-10-2008, 11:55 AM

I read about a man who payed back his social security so that he could get the higher amount. He did not have to pay any tax on the money when he paid it back. If you are from a long lived family, it would probably be a good thing to do. You will receive back the benefits in about 5 years if you can draw about $2500 a month.(s/s)

**Like2Plan** · 08-10-2008, 12:32 PM

Originally posted by cooliemae View Post

To answer the first question, you have to have begun to take money out of your TSP account by age 70.5, but you don't have to take all the money out. This is true for all IRAs, so you won't get anywhere by rolling the money over to an IRA.

cooliemae,

You are required to withdraw your account balance in a single payment, begin receiving monthly payments or begin receiving annuity payments by April 1st of the year you become 70 1/2.

Actually, you do gain an advantage by rolling over to an IRA. If you chose to take your distributions from TSP directly, it must be substantially equal payments. This can be monthly payments computed by TSP based on IRS life expectancy tables or it can be a specific dollar amount (has to be at least minimum required distribution).

The key here is substantially equal payments. After you have made an election for equal payments or an annuity, you can not change it. In the case of equal payments, if it turns out your need more money you can take a final single payment (which you could do a direct rollover IRA ) or once a year prior to December 15th, you submit a TSP-73 to change the monthly payments. (This is contained in the booklet to which I provided a link. )
So you can see that if you elect equal payments and in July, you have an opportunity to go on a once in a lifetime cruise and you want to pull $10,000 out of your TSP your only option to get to the $$ would be a final single payment (which of course could be rolled over), but you should allow several weeks for this to be accomplished.

On the other hand, if you have your $$$ transferred to your IRA in a direct rollover in the first place, yes, you still have to meet minimum required distributions. But, if in July it turns out you need money for your cruise, you can get the money out of the IRA a lot faster.

**Like2Plan** · 08-10-2008, 01:03 PM

Originally posted by Ima saver View Post

I read about a man who payed back his social security so that he could get the higher amount. He did not have to pay any tax on the money when he paid it back. If you are from a long lived family, it would probably be a good thing to do. You will receive back the benefits in about 5 years if you can draw about $2500 a month.(s/s)

Ima saver,
Did he take money from a pre-tax account to pay for it or was it ordinary income?

My calculations show another 75% from what he currently makes is another $1200 per month. But, the 110k could generate money for him. Let's say 5%. That would be about $458.00 per month. So, if OP didn't pay back the money he would still be getting $1600 plus $458 (from the earnings of the 110K) per month.

That would be $742.00 per month less than if he paid the money back and received the higher amount. If you take 742 X 12 months/110,000, it would take around 12 years to break even. (Of course, this does not take into consideration that SS does receive COLAs) This also assumes all will stay the same with SS over the next 12 years....

**cooliemae** · 08-10-2008, 01:26 PM

Thanks for the info Like2plan...I guess I was speaking to the 70.5 rules specifically, but you make a good point.

Thrift Saving Plan Question