For many FERS retirees, the combined income from their annuity and Social Security may fall short of covering all monthly expenses. To bridge this gap, setting up Thrift Savings Plan (TSP) installment payments can provide a reliable source of additional income. Here’s what you need to know to make an informed decision.
Choosing Your TSP Installment Payments
When setting up installment payments, you’ll need to decide on both the amount and frequency. Options include monthly, quarterly, or annual payments, with the ability to set a start date up to six months in the future. These installments will continue until you either stop them or exhaust your account balance. Meanwhile, your remaining balance will stay invested in the TSP, potentially allowing it to grow over time.
Traditional, Roth, or Both (Pro Rata)
If you hold both traditional and Roth TSP funds, you’ll choose whether distributions come exclusively from one or are split proportionally (pro rata) between the two. This ensures the percentage of funds drawn from each mirrors your total holdings across Roth and traditional balances.
Fixed Dollar Amount or Life Expectancy-Based Payments
There are two main ways to set your installment payment amounts. With the Fixed Dollar method, you select a set amount per installment (minimum $25). The Life Expectancy method calculates payments based on IRS life expectancy tables, ensuring the income lasts your entire lifetime. Each January, the TSP recalculates these installments based on your age and the previous year-end balance.
Adjusting Your Installment Payments
Whether you’ve chosen fixed dollar or life expectancy payments, you can make adjustments over time. You’re allowed to stop installments, switch the payment source (traditional, Roth, or both), modify direct deposit settings, or change your federal tax withholding. If you’re receiving fixed dollar payments, you can also alter the dollar amount or payment frequency.
Remember, distributions aren’t required until age 73, when Required Minimum Distributions (RMDs) begin for traditional TSP funds. For a more tailored approach, consider consulting with an FRC® advisor.
