What should I do with my TSP when I retire? (2024)

FAQs

What should I do with my TSP when I retire? ›

Your TSP account is a portable retirement benefit. This means that when you withdraw your account, you can have the TSP transfer part or all of your single pay- ment or certain monthly payments to a traditional IRA or an eligible employer plan (for example, the 401(k) plan of a new employer).

You can keep your TSP account after you separate from federal service as long as you have a vested balance of $200 or more. Many participants choose to keep their money in the TSP because of the TSP's low-cost funds.

we are required to withhold 20% of your payment for federal income taxes. This means that in order to roll over your entire payment, you must use other funds to make up for the 20% withheld.

Unlike investment accounts, TSP withdrawals don't get the advantage of being taxed at the lower long-term capital gains rates. TSP withdrawals are always taxed at your ordinary income tax rate. However, whenever you take money out of the Roth TSP then that money comes out completely tax free.

Taking a loan from your TSP is a bad idea. The money you're putting into your TSP is for retirement, not for buying a new car. If you leave federal employment with an outstanding TSP loan you have to pay back the full loan balance within 90 days.

Will withdrawals from my individual retirement account affect my Social Security benefits? Social Security does not count pension payments, annuities, or the interest or dividends from your savings and investments as earnings. They do not lower your Social Security retirement benefits.

If you decide to roll over your TSP assets to an IRA, you can choose either a traditional IRA or Roth IRA. No taxes are due if you roll over assets from a traditional TSP account to a traditional IRA, or if you roll over your contributions and earnings from a Roth TSP account to a Roth IRA.

Since interest rates are so low, it means the opportunity cost of taking money out of your TSP will be even greater. So, if the interest paid on your mortgage is lower than the rate of return of the investments in your TSP, you'd be better off by keeping your money in the TSP.

You can roll over money from eligible retirement plans, such as a 401(k), 403(b), or traditional IRA, to your existing TSP account. There are multiple advantages to rollover contributions to the TSP, and you can use this option even after you retire.

With traditional TSP, your contributions go into the TSP before tax withholding, which can potentially lower your current income tax rate. But when you take money from your traditional TSP, you'll pay taxes on both your contributions and earnings at the income tax rate of the year you make the withdrawal.

Which states tax TSP withdrawals? ›

The TSP is the retirement savings vehicle for federal employees. There are only three states—Illinois, Mississippi and Pennsylvania—that explicitly exclude distributions from 401(k) plans, IRAs or TSPs from taxation. Nine other states do not tax most or all forms of income.

For the past 12 months, it gained 10.19%. So far in 2023, it has gained 11.74%.

The TSP will automatically withdraw your RMD for you at the end of the year if you don't do it yourself. This means that TSP has your back if you forget in a given year but I would certainly still keep an eye on it if I were you.

You have several options for what to do with your TSP when you leave: Leave it: As long as you have a balance of at least $200, you can leave the funds in your TSP. Roll it over to an IRA: You can roll your TSP over to a traditional IRA or a Roth IRA. Note that if you roll it to a Roth IRA, you may be subject to taxes.

Another reason to consider a rollover is because of withdrawal options. One of the biggest downsides to the TSP is that it limits how you can take money out in retirement. In many cases, these limits won't present an issue. But if you need more flexibility, a rollover may be necessary.

Answer: More! I frequently state that there is no such thing as too much money in the Thrift Savings Plan. If you want your TSP balance to be able to generate an inflation-indexed annual income of $10,000, most financial planners will suggest that you have a $250,000 balance at the time you retire.

To acquire the full amount, you need to maximize your working life and begin collecting your check until age 70. Another way to maximize your check is by asking for a raise every two or three years. Moving companies throughout your career is another way to prove your worth, and generate more money.

, your spouse must give written consent to your withdrawal on Form TSP-77 or TSP-U-77, regard- less of your account balance or the amount of your withdrawal. Your spouse's signature must be notarized. making a full withdrawal, the TSP must notify your spouse of your withdrawal election.

Withholding taxes

We don't withhold for state or local income tax. This doesn't mean that you don't have to pay state and local taxes on your withdrawals and distributions. We report all TSP payments to your state of residence at the time of the payment (if that state has an income tax).

Yes. Your participation in the TSP does not affect your eligibility to contribute to an IRA. However, the Internal Revenue Code (IRC) establishes limits on the dollar amount that you can contribute to eligible employer plans like the TSP and to individual retirement accounts such as traditional IRAs and Roth IRAs.

Is TSP better than 401K? ›

While they may not have as many funds to choose from, TSP participants do have one big advantage over most 401(k) investors: lower fees. The total expense ratio, which covers both investment and administrative fees, is 0.066% for individual TSP funds.

Filling Out Form TSP-70 Request for Full Withdrawal.

If you are doing a full withdrawal (transfer or rollover of the entire contents of your TSP), then you will need to fill out pages 1, 2, and 4 (Traditional Balance) and/or Page 5 (Roth Balance).

The answer is different for everyone. Depending on how long and aggressively you've been invested, you may have enough assets accumulating where you should consider moving into a more defensive position. For others, perhaps they've not saved enough or invested aggressively enough and need to maximize their returns.

You can instruct the TSP to transfer your funds directly to your new retirement plan. Alternatively, you can withdraw the funds and deposit them personally to a Roth IRA by a set deadline. Both approaches create immediate tax liabilities, as money in traditional TSPs is taxed at withdrawal.

Is Roth IRA or Roth TSP Better? It depends, but most people should contribute to their TSP at least up to the matching funds limit (3% of your salary). Beyond this, the TSP is better if your taxes are high today and you expect them to be much lower in retirement.

If you have a low living cost and can supplement your income with a part-time job or a generous pension, then retiring on $3,000 a month is certainly possible.

Fortunately, there are some states that don't charge taxes on retirement income of any kind: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington and Wyoming.

Every Thrift Savings Plan fund scored positive returns in January, starting out 2023 on a good note for federal investors. The biggest winner was the small cap stock index S Fund, with a return of 10.82%.

How do I maximize my TSP 2023? ›

Your catch-up contributions will be in addition to the 2023 TSP regular contribution limit, which means employees can contribute up to $30,000 in 2023. To maximize the catch-up contribution amount of $7,500 for 2023, employees will need to contribute an additional $288 per pay period ($7,500/26 = $288.46).

Thrift Savings Plan C Fund Monthly Returns is at 1.56%, compared to 3.67% last month and -8.72% last year. This is higher than the long term average of 0.93%.

More In Retirement Plans

You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 72 (73 if you reach age 72 after Dec. 31, 2022).

SECURE 2.0 increases the start age for required minimum distributions from 72 to 73 in 2023 and then further increases the start age to 75 in 2033. We're continuing to assess how SECURE 2.0 will affect the TSP and will provide updates as more details are finalized.

It's usually easiest to take your required minimum distribution (RMD) in cash since there is no tax advantage. You can take just the dollar amount you need to, which you can't necessarily do otherwise.

Each calendar month, you can use your first two reallocations or fund transfers to redistribute money in your account among any of the TSP funds. After the first two of either transaction type, you can only move money into the G Fund. Reallocations and fund transfers are limited.

For most, the Roth TSP is the better choice because currently, you're in a lower tax bracket than you'll be in the future. With a Roth, your earnings and withdraws are tax-free because you contribute after-tax money, meaning you pay taxes upfront.

If you over contribute, you may request a refund of the excess amount from the TSP. For a limited in January each year, we make the Refund Request Form available. You can get the form by calling the ThriftLine or logging in to My Account. We must receive your excess deferral refund request no later than March 15.

Roth TSP: Which One Is Right for You? The primary difference between Roth and traditional TSPs is how they're taxed. Specifically, a traditional TSP is better if you want to leverage your account to decrease your current income taxes and pay for withdrawals during retirement.

Data from the Federal Reserve shows that the average savings in the United States at retirement age is just $255,200. So if you find yourself with $400,000 in assets at retirement age, congratulations! You're doing much better than average.

Is 5% in TSP good? ›

Employees should invest at least 5% in the TSP; that is the percentage needed to obtain the maximum available matching funds. Beyond that, Employees need to balance long-term investment needs against other needs.

The Current Population Survey Annual Social and Economic Supplement (CPS ASEC) releases data every year. The 2022 CPS ASEC asked participants to report their household income for 2021. Based on that data, the average retirement income for U.S. adults aged 65 and older is $75,254.

Many separated employees will choose to roll (transfer) their funds into an outside IRA or other tax deferred account. But you can also leave your funds in the TSP if you want (the Thrift Board encourages you to not transfer your funds out of the TSP).

Complete Form TSP-77 and mail it to the TSP Service Office. (Your request cannot be processed until your agency sub- mits confirmation of your separation to the TSP.) 2. Use the TSP Web site (www.tsp.gov) to begin (and in some cases, complete) your withdrawal request.

By age 50, you would be considered on track if you have three to six times your preretirement gross income saved. And by age 60, you should have 5.5 to 11 times your salary saved in order to be considered on track for retirement.

Yes. Participants may roll over eligible rollover distributions from their TSP accounts to a qualified trust or an eligible retirement plan (as defined in IRC § 402(c)(8)). (See 5 USC § 8433(c)(2).) An eligible retirement plan can be either an IRA or an eligible employer plan.

In a nutshell, Ramsey advises federal employees to invest at least 5% in a Roth TSP, then invest the rest in a Roth IRA. He also recommends investing in a handful of TSP funds -- funds C,S, and I -- with a higher percent in the C Fund (at least 60 to 80%).

The Aggressive Funds

The C, S, and I funds are the more aggressive of the funds in the TSP. The reason they are called “aggressive” is because they have a much higher chance of sustaining major growth over time. But because of this, they can also be much more volatile than the G and F funds.

TSP Lump-Sum Withdrawals

You also may have part of the payment paid directly to you and part transferred. To make a lump sum withdrawal, use Form TSP-70, Request for Full Withdrawal, or TSP-77, Request for Partial Withdrawal When Separated.