For many FERS retirees, the total amount of their annuity payment and Social Security benefit combined may not be enough income to cover all of their monthly expenses. As a result, they may want to set up installment payments from their Thrift Savings Plan (TSP) as a source of recurring income. If this describes you it’s important to know the facts to make the best decision.
TSP Installment Payments
When you choose to take installment payments you need to decide on the amount and when to take them. You can choose monthly, quarterly (every three months), or annual installment payments and schedule a date up to six months into the future for when your installments begin. Your payments will continue, unless you stop them or until your total account balance equals zero. As you take installments to draw down your account, your balance will remain invested in the TSP and continue to grow.
Traditional, Roth or Both (Pro Rata)
If you’ve been making contributions to both your traditional and Roth TSP balances, you’ll need to specify if your distribution should come only from your traditional money, only from your Roth money, or pro rata. Pro rata means the distribution will have the same percentages of Roth and traditional funds.
“When you choose Life Expectancy payments, you can rest assured your TSP income will last your entire lifetime.”
Fixed Dollar Amount Or An Amount Based On Life Expectancy
There are two methods of setting up the amount of your installment payments. You can select a Fixed Dollar Amount for each installment as long as it’s at least $25. Or, you can select Life Expectancy installments based on the IRS life expectancy tables.
Life Expectancy installments are calculated using your entire TSP account balance (Roth and traditional). Each January, the TSP will recalculate the amount of your Life Expectancy installment based on your current age and your account balance at the end of the preceding year. When you choose Life Expectancy payments, you can rest assured your TSP income will last your entire lifetime.
Making Changes To Your Installments
Whether you’re receiving fixed dollar payments or payments based on life expectancy, you can stop installments; change the source of installments (traditional, Roth, or both); start, stop, or change direct deposit of your installments; and change your federal tax withholding. Those receiving fixed dollar payments can also change the dollar amount and the frequency of payments.
Keep in mind you’re not required to take any distributions until age 73, which is when Required Minimum Distributions (RMDs) kick in for your traditional TSP. To learn more, connect with an FRC® trained advisor.
