Participants in the Federal Thrift Savings Plan (TSP) have two options for withdrawing from a TSP account after leaving federal service. Participants can take TSP withdrawals as a partial withdrawal or a full withdrawal.
The Thrift Savings Plan has been described as "easily the best retirement plan in the country" by Bogleheads® author Allan Roth. Therefore, investors are cautioned to think carefully before closing their TSP which can be an irrevocable decision.
[A]nyone who’s proposing that you leave the TSP and move your money to an individual retirement account has some serious explaining to do.
The investment industry is doing and saying anything it can to get at your TSP account, and it’s not your benefit it has in mind. I urge you to resist the temptation to believe there is some better solution to the problem of saving and investing for retirement. There is not.
At 2.5 basis points per year [3.8 as of 2017] — those are one-hundredths of a percent — the TSP is the envy of private-sector investors and kryptonite to brokers, bankers and insurance agents. Make the most of the TSP, and you’ll reap the rewards. Fall for the sales pitch, and you’ll pay the price — literally.
— Mike Miles, Don’t overlook TSP for lowest-cost investment, Federal Times
See: TSP Withdrawals at TSP.gov
See this article's Discussion tab for a discussion of withdrawals for non-Roth accounts.
TSP Modernization Act of 2017Since the enactment of the TSP Modernization Act of 2017 on November 23, 2017, participants are no longer limited to a single partial withdrawal in their lifetime. The operational details on how the TSP will allow for multiple withdrawals are scheduled to be implemented in the next two years. When these details are known, this section will be updated with the new information. Until then, please ask in the forum for assistance.
According to the instructions for Section II of TSP Form 77, "Your withdrawal will be disbursed pro rata (i.e., proportionally) from any traditional (non-Roth) and Roth balances in your account." And there is no place in Section II to indicate a separate Roth or Traditional withdrawal, only the total amount of the withdrawal. Therefore, participants cannot remove only their Roth contribution and leave a Traditional contribution. Both will be subject to a RMD the year after a participant reaches age 70 1/2. Note that the checklist before page 1 of Form 77 is misleading in that it implies that one can make separate Traditional and Roth withdrawals.
Pages 3 & 4 of Form 77 are used to direct where the withdrawal is sent. Page 3 directs a percentage of the Traditional portion of the withdrawal to a Traditional IRA, Eligible Employer Plan, or Roth IRA (if the latter, taxes may be due). Page 4 directs a percentage of the Roth portion of the withdrawal to a Roth IRA or an Eligible Employer Plan - Roth Account. Any remaining balance can be sent to a checking or savings account using Section III on Page 1 of Form 77.
Full TSP withdrawals are made using TSP Form 70. Full withdrawals can be made as a Single Payment, Life Annuity, or as a Series of Monthly Payments, which can be a Specific Dollar Amount or based on Life Expectancy. Any combination of these three options may be used via Section IV on page 2 of Form 70.
Page 3 of Form 70 provides options for Federal Tax Withholding for Single Payments and Monthly Payments.
Page 4 of Form 70 provides options for transferring the Traditional Balance of the TSP account (Single Payment, Monthly Payments, and Transfer to Traditional IRA, Eligible Employer Plan or Roth IRA).
Page 5 of Form 70 provides options for transferring the Roth Balance of the TSP account (Single Payment, Monthly Payments, and Transfer to Roth IRA or Eligible Employer Plan—Roth Account).
Page 6 of Form 70 provides options for the Annuity Election.
Required Minimum Distribution
From document TSP-775:
"By April 1 of the year following the year you become age 70 1⁄2 and are separated from Federal service, the TSP requires that you withdraw your entire account balance in a single payment, begin receiving monthly payments, purchase a life annuity, or use a combination of these withdrawal options. If you do not make a withdrawal election by the required deadline, your account balance will be forfeited to the TSP. You can reclaim your account, but your account balance will not accumulate earnings after it is forfeited."
"Your entire TSP account is subject to the required minimum distributions. When you have traditional (non-Roth) and Roth balances in your account, any withdrawals will be paid pro rata (i.e., proportionally) from each balance."
"If you take your entire account as a series of monthly payments (other than payments based on life expectancy), your monthly payments will count toward satisfying your required minimum distribution. If necessary, the TSP will give you a supplemental payment by March 1 of the following year to satisfy your minimum distribution requirement."
As an employer sponsored retirement plan, the Roth TSP, like a Roth 401(k), has required minimum distributions. According to the TSP, "Required minimum distributions apply to both traditional and Roth balances and are paid proportionally from both balances." One of the many advantages of Roth IRAs is that they are not subject to RMD. Employer sponsored retirement plans like the Roth TSP and Roth 401(k)s, by contrast, do not enjoy that advantage unless they are rolled over to a Roth IRA. For TSP participants who expect to have significant Roth TSP balances, who would prefer not to withdraw from those balances, and who want to remain in the TSP, the decision to contribute to the Roth TSP should be reconsidered, since they will be required to take RMD's on any Roth balance. Alternatively, a full withdrawal of both Traditional and Roth contributions is possible. Or one could withdraw everything except for the minimum $200, putting the Roth TSP amount into a Roth IRA and the Traditional TSP amount into a Traditional IRA, and then transferring the Traditional IRA amount back into the TSP.
A qualified Roth 401(k) distribution is generally a distribution that is made after a 5-taxable-year period of participation and is either:
- made on or after the date you attain age 59½
- made after your death, or
- attributable to your being disabled.
When you roll over a distribution from a designated Roth account to a Roth IRA, the period that the rolled-over funds were in the designated Roth account does not count toward the 5-taxable-year period for determining qualified distributions from the Roth IRA. However, if you had contributed to any Roth IRA in a prior year, the 5-taxable-year period for determining qualified distributions from a Roth IRA is measured from the earlier contribution. So, if the earlier contribution was made more than 5 years ago and you are over 59 ½ a distribution of amounts attributable to a rollover contribution from a designated Roth account would be a qualified distribution from the Roth IRA.
If you take a distribution from your designated Roth account before the end of the 5-taxable-year period, it is a nonqualified distribution. You must include the earnings portion of the nonqualified distribution in gross income. However, the basis (or contributions) portion of the nonqualified distribution is not included in gross income. The basis portion of the distribution is determined by multiplying the amount of the nonqualified distribution by the ratio of designated Roth contributions to the total designated Roth account balance.
For example, if a nonqualified distribution of $5,000 is made from your designated Roth account when the account consists of $9,400 of designated Roth contributions and $600 of earnings, the distribution consists of $4,700 of designated Roth contributions (that are not includible in your gross income) and $300 of earnings (that are includible in your gross income). See FAQ's on Designated Roth Accounts, IRS. </ref>
Partial Withdrawal of Roth TSP only
This section outlines some complicated TSP and IRA transactions. Before embarking on this, be sure you understand the steps thoroughly as some of these steps are irrevocable.
Many TSP participants have expressed dissatisfaction that employer retirement plans like the Roth TSP and Roth 401(k) require RMD from the Roth portion. One way to avoid this is to transfer the assets out of the Roth TSP and into a Roth IRA, so that RMD will no longer be required.
As noted elsewhere, however, a partial withdrawal and RMD comes out of the TSP participant's traditional and Roth balances pro rata. For example, if a TSP participant has $100,000 total, with $25,000 in Roth TSP and $75,000 in Traditional TSP, and requests a $40,000 partial withdrawal, then the withdrawal will be $10,000 from the Roth TSP and $30,000 from the Traditional TSP.
If the participant would like to do a partial withdraw for only the Roth TSP portion, that is not allowed under current rules, but there is a workaround that achieves virtually the same.
Since the TSP allows a participant to transfer a Traditional IRA into the TSP, the participant can do a partial withdrawal from the TSP for nearly the entire account balance (less the $200 minimum required to maintain the account) into a Roth IRA and Traditional IRA, and then transfer the Traditional IRA portion right back in to the TSP. The net result is that you'll have transferred almost all of your Roth TSP balance into a Roth IRA while keeping your Traditional TSP balance in the TSP.
To avoid any unfortunate mix-ups, one should probably leave behind more than the $200 minimum in the TSP.
For example, suppose the following starting point:
Open up a Rollover Traditional IRA and a Rollover Roth IRA in anticipation of the partial withdrawal.
|Rollover Roth IRA||$0|
|Rollover Traditional IRA||$0|
Execute a partial withdrawal of $499,000 from the TSP into your rollover IRAs. You will leave behind $1,000 in the TSP; the minimum balance to retain the TSP account is $200. The remaining $1,000 in the TSP will be split pro rata in the same proportion you had originally (20%/80% Roth/Traditional). After the withdrawal completes and the accounts settle, your balances will be:
|Rollover Roth IRA||$99,800|
|Rollover Traditional IRA||$399,200|
Finally, transfer your Traditional Rollover IRA back into your TSP. After this transaction settles, your ending balances will be:
|Rollover Roth IRA||$99,800|
|Rollover Traditional IRA||$0|
The net result is that you have transferred 99.8% of the Roth TSP into your Roth IRA, while leaving all of your Traditional TSP in the TSP.
- Thrift Savings Plan - The Model for all 401(k) Plans! - CBS News by Allan Roth, 16 May 2010
- Keeping Score? at TSP.gov
- Thinking about moving your TSP savings to another plan? - YouTube from TSP4gov
- "As brokers urge IRA rollovers, ex-workers ditch their low-fee federal retirement plan". Washington Post. 2014-08-16. Retrieved 2017-12-10.
- Seeking Access to the TSP’s Billions : FedSmith.com
- TSP-77 at TSP.gov
- TSP-70 at TSP.gov
- TSP-775 at TSP.gov
- "Retirement Plans FAQs regarding Required Minimum Distributions | Internal Revenue Service". irs.gov. 2017-11-16. Retrieved 2017-11-24.
The RMD rules apply to all employer sponsored retirement plans, including profit-sharing plans, 401(k) plans, 403(b) plans, and 457(b) plans. The RMD rules also apply to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. The RMD rules also apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRAs while the owner is alive.
- "TSP: Special Withdrawal Considerations". tsp.gov. Retrieved 2017-11-24.
- Options after Leaving Federal Service at TSP.gov.
- The White Coat Investor (2013-08-19). "How To Get Your Tax-Exempt TSP Money In To A Roth IRA". The White Coat Investor - Investing And Personal Finance for Doctors. Retrieved 2017-11-24.
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