One of the many decisions you’re faced with when you retire from your federal career is whether you should keep your money in the Thrift Savings Plan (TSP) or move the funds into an IRA. Before you decide, consider a few of the advantages of staying in the TSP.
1. Flexible TSP Withdrawal Options
The TSP withdrawal options are designed for federal employees living on a fixed income in retirement. You can choose to take automatic monthly, quarterly, or annual installment payments at a fixed dollar amount as long as it’s at least $25. If you’re worried about outliving your TSP, your installments can be calculated for you based on the IRS Life Expectancy tables. And, now that the 30-day withdrawal restriction has been eliminated, you can take unlimited lump-sum TSP distributions of at least $1,000 even if you’re receiving installment payments.
2. Penalty-Free 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. Even better — 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.
“Your RMD is automatically calculated and sent directly to you so you don’t have to worry about IRS penalties.”
3. No RMDs If You Continue To Work For Uncle Sam
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. Add to this, when you eventually retire and become subject to RMDs, the TSP takes care of everything for you. Your RMD is automatically calculated and sent directly to you so you don’t have to worry about IRS penalties.
The TSP Mutual Fund Window
Having access to a wider range of investment options is one of the reasons federal retirees choose to transfer their TSP funds into an IRA. However, 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.
Before you invest all of your TSP funds in an IRA, touch base with an FRC® trained advisor to discuss the best strategy for your financial situation.
