Tsp lookthrough trust6/10/2023 ![]() ![]() ![]() The course covers TSP withdrawal options and death benefits, and provides several retirement scenarios to get attendees thinking about how to best turn their savings into income. There’s also a course called “TSP Pre-Separation,” which is designed to give late-career federal employees and military service members the tools they need to make smart decisions about their TSP savings. ![]() The focus is on determining how much someone needs to save in their TSP account so they can retire at their desired standard of living with a nest egg that will last for the rest of their lives. For withdrawal options and details, consider attending the TSP’s “To Retirement and Beyond.” This two-part presentation is most relevant for employees within five to 10 years of their planned retirement. To help clarify issues like these, the TSP has begun producing webinars for participants. If they are under age 59 ½ at the time of their spouse’s death, they can calculate what is needed to cover her expenses until age 59 ½ and leave that sum in the TSP. A solution to this problem is for the spouse to do a partial withdrawal into an IRA that can be used without penalty after age 59 ½. Each child will get a $500K distribution taxed in full in the year of distribution. The surviving spouse leaves the money in the TSP beneficiary participant account and dies with the balance still around $1 million. So, as an example, suppose a participant has a $1 million TSP balance at the time of his/her passing, with a surviving spouse and two children. That lump sum distribution will be taxed in full in the year of distribution. This is a huge problem because of the resulting tax issue. There is no option to continue in the TSP and there is no option to roll over the account to an inherited IRA. The problem arises upon the death of the spouse who owns the beneficiary participant account. Non-spouse beneficiaries would be subject to the 10-year payout requirements dictated by the SECURE Act passed in late 2019. The TSP must withhold federal income tax from taxable death benefit payments we make unless a beneficiary transfers the payment to an inherited IRA. The Roth earnings portion of a death benefit payment is paid tax-free if five years have passed since January 1 of the year the participant made his or her first Roth contribution. A non-spouse beneficiary (or trust) is eligible to take a lump sum distribution and the payment is also eligible for a rollover distribution into an “inherited” IRA as long as the account balance is at least $200. For a surviving spouse whose share of the balance is $200 or more, the TSP will establish a beneficiary participant account in their name. The "BIG R" is the potential tax bomb downstream for the beneficiaries of a TSP beneficiary participant account. All transactions can be executed with simply a mouse click or a phone call. With an IRA, this issue disappears (after getting spousal consent for the initial rollover). If he had to go to a notary with my mother every time he wanted to execute a change in withdrawals, it would have been a nightmare. My dad was wheelchair bound in his later years. While this probably is not a big deal when relatively young, I see it being a huge hassle when older. It is important to address two reasons to consider leaving the TSP, one which I'll call "little r" and the other "BIG R." The "little r" is the requirement for married Federal Employees Retirement System participants to obtain the notarized consent of their spouse for all withdrawals, changes in withdrawals, etc. I recently received an email from “Mark,” who pointed out two additional TSP requirements regarding post-retirement withdrawals that he doesn’t like: According to the TSP, it generally takes seven to 10 business days to process a request once it’s properly completed and submitted. These can be due to lengthy processing times, but also are often caused by participants’ mistakes in filing request forms. Delays in receiving funds after making a withdrawal request.The inability to contribute to the plan after government service ends.Limited investment choices: There are only five core TSP funds: C, S, F, S, and I. ![]() The inability to withdraw from specific funds, such as taking payments only from the G Fund while allowing the money in the other funds to continue to be invested.But as good as the TSP is, there are things that some retirees don’t like about it. Last week, we looked at what makes leaving your money in the Thrift Savings Plan after retirement attractive to many federal employees and former feds. ![]()
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