Common Questions About the Thrift Savings Plan (TSP) for Retirees
Navigating the Thrift Savings Plan (TSP) as you approach retirement can be complex, especially when it comes to making decisions about investments, distributions, and withdrawals. Here, we answer some of the most common questions retirees have about managing their TSP accounts.
Investment Options: G Fund vs. L 2025 Fund
Q: I am 63 years old and will retire in two years (age 65) or earlier. Does it make sense for me to invest in the G Fund now vs. the L 2025 Fund?
The L 2025 Fund aims for moderate growth with a focus on asset preservation. It gradually shifts its allocation to more conservative investments as you approach 2025 and will automatically transition into the L Income Fund by July 2025.
While the G Fund offers a more conservative approach with minimal risk, choosing between the G Fund and the L 2025 Fund depends on your specific circumstances, goals, and risk tolerance. If the TSP is not your only source of retirement savings, this may influence your allocation decisions. You might consider the “age minus 100 rule” as a starting point for allocating your assets, but consulting with a financial professional is advisable for personalized advice.
Required Minimum Distributions (RMDs)
Q: Will TSP automatically send me a required minimum distribution (RMD) at age 73?
Yes, if you do not choose a withdrawal that meets your RMD in the year you turn 73, the TSP will automatically send an amount to meet the remaining required amount. The required start date for your first RMD is April 1 of the year following the year you turn 73. However, delaying until the following year means you will need to take two RMDs that year. It’s important to plan accordingly to manage your tax liability.
Annuity Options and Flexibility
Q: Am I allowed to take part of my TSP towards the annuity option and still have flexibility with my TSP balance for partial and installment withdrawals?
Yes, you can receive a partial distribution of a portion of your account even if you have opted for installment payments or purchased a TSP annuity with part of your account balance. There is no longer a 30-day waiting period between withdrawal requests, allowing more flexibility. You can manage your withdrawal requests online through My Account and can stop, change, or start installment payments at any time.
Withdrawal Methods: Tax Minimization
Q: Do you have any advice on which method is best when withdrawing money from a TSP (tax minimization): partial withdrawal or monthly withdrawal (e.g., $150,000 one time or $12,500 per month for 12 months)?
From a tax perspective, the total annual amount you receive determines your tax liability. Whether you receive a lump sum of $150,000 or monthly installments of $12,500, your tax liability will be the same for that tax year. It’s essential to consider your overall income and tax bracket when planning withdrawals.
Requesting Withdrawals from Pre-Tax Traditional TSP Money
Q: Where would I look on the TSP website if I want to request a withdrawal from my pre-tax traditional TSP money rather than my balance invested in the TSP Roth portion of my account?
To request a withdrawal from your pre-tax traditional TSP money, log in to My Account on the TSP website and start the request. You can designate whether the funds come from the Roth or Traditional portions of your account. For detailed instructions, refer to the TSP booklet on Distributions and the booklet on Tax Rules About TSP Payments.
By understanding these key aspects of managing your TSP account, you can make more informed decisions about your retirement savings. Always consider consulting with a financial professional to tailor strategies to your unique financial situation.