Financial planning is key to a secure retirement, but your financial plan shouldn’t follow a “set it and forget it” strategy. Even in retirement, you’ll need to make important decisions that impact your nest egg, and an important one is where to keep your money in the TSP or roll it into an IRA. Before you decide, there are a few things you should consider.
Your TSP Offers Flexible Withdrawal Options
Different people require different withdrawal strategies, and fortunately, the TSP delivers. Designed to accommodate retired federal employees on a fixed income it gives you the option of automatic monthly, quarterly, or annual installment payments at a fixed dollar amount – as long as it’s at least $25. If you want to establish a payment amount that keeps you from outliving your TSP, your installments can be calculated based on the IRS Life Expectancy tables. And with the elimination of the 30-day withdrawal restriction, you can take unlimited lump-sum TSP distributions of at least $1,000 even if you’re receiving installment payments.
No Penalties For Early Withdrawals In Retirement
When you retire, the TSP Rule of 55 enables you to start taking penalty-free distributions in the year you turn 55. LEOs and SCEs have two options for taking early TSP withdrawals without penalties: when they have 25 years of service or when they turn 50, whichever is earlier. With an IRA, any withdrawals made before age 59½ are subject to a 10% IRS penalty – without exception.
No RMDs If You Continue Federal Work
The SECURE Act 2.0 raised the age for Required Minimum Distributions (RMDs) to 73 for those born after December 31, 1950. However, if you continue to work for the federal government beyond age 73, you won’t be subject to RMDs until you separate from service. When you eventually retire and RMDs kick in, the TSP automatically calculates and sends it directly to you so you can avoid any IRS penalties.
The TSP Mutual Fund Window
Some retirees are hesitant to keep their funds in the TSP due to a lack of investment options. This may make an IRA a more attractive option. But, since 2022, the TSP Mutual Fund Window has been providing participants with the ability to invest in nearly 5,000 mutual funds. In terms of investing, the Mutual Fund Window is similar to a self-directed brokerage account (SDBA) that’s available in many private sector 401(k)s. For more information, download the TSP Mutual Fund Window Fact Sheet.
To determine the best investment strategy for you, touch base with an FRC® trained advisor who can ensure your dream retirement is on track.
