In a previous article, we covered the top three common Thrift Savings Plan (TSP) mistakes to avoid:
- Not saving enough and missing out on the 5% agency match.
- Taking out a TSP loan close to retirement.
- Not having a TSP distribution strategy before you retire.
Here are three more TSP mistakes that can prevent you from capitalizing on all the advantages your TSP offers.
Not Understanding All Of Your TSP Withdrawal Options
When you separate from federal service, you also have flexible options for taking distributions from your TSP account:
- Withdraw the entire balance as a taxable lump sum.
- Take monthly, quarterly or annual installment payments at a fixed dollar amount or based on the IRS Life Expectancy tables.
- Use your TSP balance to purchase the MetLife Annuity through the TSP or purchase a lifetime annuity from a private insurer.
Keep in mind, when you withdraw all of your traditional TSP balance as a lump sum, the amount is subject to federal income taxes (and, possibly, state income taxes) for the year of the withdrawal. Also note that the age for Required Minimum Distributions (RMDs) from your traditional TSP has been raised to 73 for those born after December 31, 1950.
“In fact, currently retired federal workers say their top regret is not contributing more to their TSP nest egg.”
Not Taking Advantage of Catch-Up Contributions At Age 50
They say that age 50 is the new 40 but that doesn’t change the fact that retirement is around the corner when you reach your half-century birthday. Since your FERS annuity (pension) and Social Security may not keep up with inflation, taking full advantage of TSP Catch-Up contributions helps to ensure you won’t run out of money in your later years. In fact, currently retired federal workers say their top regret is not contributing more to their TSP nest egg. If you turn age 50 during the calendar year, the 2024 IRS limit for TSP Catch-Up Contributions is $7,500. This in addition to the regular TSP limit of $23,000 for 2024.
Failing To Update Your TSP Beneficiaries
If you can’t remember who you designated as your TSP beneficiary, it’s definitely time for an update. Otherwise the wrong person may inherit funds from your TSP and other federal programs that provide a death benefit. You also need to update TSP beneficiaries after a divorce, remarriage or when a spouse beneficiary predeceases you. Just log into “My Account” on the TSP website and complete the beneficiary designation process electronically. If you designate your spouse, it’s important to choose a secondary beneficiary should your spouse pass away before you.
To learn more TSP strategies, connect with an FRC® trained advisor.
