That is the fourth of 4 columns discussing TSP withdrawal choices which might be accessible to Thrift Financial savings Plan (TSP) members who retire from federal service.
This column will current installment funds. TSP installment funds are automated funds from a TSP participant’s accounts (conventional TSP account and Roth TSP account). There are two strategies for setting the quantity of an installment cost. The 2 strategies are a set greenback cost quantity and a cost primarily based on life expectancy. Each cost strategies are mentioned.
A TSP participant can select to obtain mounted greenback funds from their account on a month-to-month foundation, on a quarterly (each three months) foundation, or on an annual foundation. A TSP participant could schedule a date of as much as six months sooner or later for these installment funds to start. These funds will proceed till the TSP participant stops them or till the TSP complete account steadiness equals zero. That is true even when the TSP participant chooses to have the installment funds come from the standard TSP steadiness first or from the Roth TSP account steadiness first. When the TSP participant runs out of cash within the participant’s chosen TSP account, then funds will proceed from the TSP account that the TSP participant didn’t select.
A TSP participant could schedule a date as much as six months sooner or later for these installments to start. These funds will proceed till the TSP participant stops them, or till the TSP complete account steadiness equals zero. That is true even when the TSP participant chooses to have the installment funds come from the standard TSP steadiness first or from the Roth TSP account steadiness first. When the TSP participant runs out of cash within the participant’s chosen TSP account, then funds will proceed from the TSP account that the TSP participant didn’t select.
There are two methods of setting the cost greenback quantity, a set greenback quantity or funds primarily based on life expectancy.
TSP Installment funds of a set greenback quantity
The TSP participant chooses the quantity she or he needs to obtain. Minimal quantity is $25.
Making modifications to mounted greenback installment funds
A TSP participant can cease or make modifications to his or her mounted greenback installment funds at any time. Utilizing My Account, the TSP participant can cease present installment funds and request new installment funds. To make sure modifications with out stopping the TSP installment funds, the TSP participant should name the ThriftLine (1-877-968-3778).
To make the next modifications to installments, the TSP participant should first cease present installment funds after which request new installment funds, which the TSP participant can carry out logging on to MyAccount or by calling the ThriftLine (1-877-968-3778):
• Begin, cease, or change direct deposit of the TSP participant’s installments if funds go to multiple vacation spot.
• Change the greenback quantity of the TSP participant’s funds.
• Change the frequency (month-to-month, quarterly or yearly) of the TSP participant’s funds.
• Change the supply TSP account (conventional TSP or Roth TSP) of the TSP installments (conventional, Roth, or each).
• Change the installment kind (mounted greenback quantity or primarily based on life expectancy).
• Change from the Single Life Desk to the Uniform Lifetime Desk when taking required minimal distributions (RMDs).
A TSP participant could make the next modifications with out stopping installments if the TSP participant calls the ThriftLine (1-877-968-3778):
- Begin, cease, or change direct deposit of the TSP participant’s installments if funds go to a single vacation spot.
Change the quantity of the TSP participant’s federal earnings tax withholding. - Begin rolling over conventional TSP cash (not Roth TSP cash) from the TSP participant’s installment funds to a conventional IRA or to an eligible employer-sponsored conventional certified retirement plan (provided that installments are of a set greenback quantity and anticipated to final lower than 10 years).
- Change or cease rollovers (if the TSP participant is at present doing rollovers).
- Anticipated period of installment funds and federal earnings tax withholding.
The foundations for federal tax withholding and eligibility to rollover cash to an IRA or to an eligible employer plan are completely different relying on how lengthy your installments are anticipated to final. The TSP determines the anticipated period of a TSP participant’s installment funds utilizing the TSP participant’s account steadiness, the cost quantity the TSP participant has chosen, and an assumed earnings fee.
If the anticipated period of a TSP participant’s installments is lower than 10 years, the next IRS guidelines apply:
• The TSP should withhold 20 % in federal earnings taxes of any quantity {that a} TSP participant didn’t roll over for federal earnings tax.
• A TSP participant can instruct the TSP to withhold a proportion that’s higher than 20 %, however you can not have much less federal earnings withheld or waive federal earnings tax withholding.
• A TSP participant could rollover all or a part of a conventional TSP account installment funds to a conventional IRA or to an eligible employer-sponsored conventional certified retirement plan.
If the anticipated period of the TSP participant’s installment funds is 10 years or extra or they’re primarily based on life expectancy, the next IRS guidelines apply:
The TSP is required to withhold federal taxes from any taxable quantity as if the TSP participant is single with zero exemptions until the TSP participant elects a distinct possibility (installments funds initiated earlier than 2023 will proceed to have withholding as if the TSP participant is married with three dependents until the TSP participant chooses a distinct possibility or does so sooner or later ). The TSP participant can request {that a} completely different proportion be withheld or that nothing be withheld.
• A TSP participant can’t rollover any a part of his or her annual TSP required minimal distribution (RMD) to an IRA or eligible employer plan.
The next occasions will set off a recalculation of a TSP participant’s anticipated installment period:
• A TSP participant modifications the greenback quantity or frequency of installment funds.
• A TSP participant makes a rollover contribution to his or her TSP account.
• A TSP participant takes a distribution or purchases a TSP annuity along with the TSP participant’s installment funds.
TSP Installment funds primarily based on life expectancy
A TSP participant could have the TSP compute the annual distribution (and paid in 12 equal month-to-month funds) primarily based on considered one of two IRS life expectancy tables. The preliminary cost might be primarily based on the TSP participant’s age and the quantity of a TSP participant’s conventional TSP account (or Roth IRA account) steadiness on the time of the primary cost. Observe that life expectancy funds are calculated utilizing the participant’s complete conventional TSP (or Roth) account steadiness. Every January, the TSP will recalculate the quantity of the installment cost for that 12 months. The recalculation might be primarily based on the TSP participant’s present 12 months age and the standard TSP account steadiness on the finish of the previous 12 months.
·As talked about above, the TSP makes use of considered one of two IRS life expectancy tables to compute the annual distribution: The next is details about these life expectancy tables:
Funds primarily based on life expectancy are decided utilizing IRS tables, with the Single Life Expectancy Desk accessible earlier than RMD age and the Uniform Lifetime Desk required at and after RMD age, with no choice to revert to the Single Life Expectancy Desk.
IRS Life Expectancy Tables — IRS Single Life Desk, Treas Reg § 1 401(a)(9)-9, Q&A 1, is used to calculate installments primarily based on life expectancy for members who haven’t but reached the required minimal distribution (RMD) age when installments start. These members could select to change to the Uniform Lifetime Desk, Treas Reg § 1 401(a)(9)-9, Q&A 2, once they attain RMD age This determination can’t be reversed. The Uniform Lifetime Desk might be used for members who’ve already reached the RMD age when funds start. There isn’t any possibility to change to the Single Life Desk for these members.
A portion of the IRS Single Life Desk, Treas Reg § 1 401(a)(9)-9, Q&A 1 is offered right here*:
*From 2025 IRS Publication 590-B (https://www.irs.gov/pub/irs-pdf/p590b.pdf).
IRS’ Uniform Lifetime Desk, Treas Reg § 1 401(a)(9)-9, Q&A 2 is offered right here*:
*From 2025 IRS Publication 590-B (https://www.irs.gov/pub/irs-pdf/p590b.pdf).
The next is an instance of a federal worker who retired from federal service and elected TSP installment funds primarily based on life expectancy:
(1) Identify of TSP participant: Shirley
(2) Age of participant: 65
(3) Retired from Federal service on December 31,2023 at age 65..
About one month after retiring from federal service, Shirley requests on-line (utilizing Kind TSP-99: Withdrawal Request for Separated and Beneficiary Individuals – Civilians) that beginning instantly (for the 12 months 2024) she’s going to obtain month-to-month funds primarily based on life expectancy from her conventional TSP account. Her conventional TSP account steadiness as of 12/31/2023 was equal to $1,200,000.
(6) The TSP will compute Sylvia’s month-to-month funds for the 12 months 2024 primarily based on the $1,200,00 account steadiness as of 12/31/2023, and Shirley’s single life expectancy (age 66 throughout 2024) from the IRS’ single life expectancy desk (proven above). Month-to-month funds in future years might be recomputed primarily based on the account steadiness on the earlier December 31 and Sylvia’s recomputed life expectancy issue primarily based on her age within the present 12 months.
For 2024 (when Sylvia will grow to be age 66): Sylvia’s annual cost is computed as follows:
$1,200,000 (account steadiness as of December 31,2023)/22.0 (single life expectancy issue for age 66)
= $54,545 (annual cost for the 12 months 2024)
or $4,545 (month-to-month cost for the 12 months 2024)
Sylvia’s annual and month-to-month TSP funds for the years 2024-2027 primarily based on life expectancy are summarized within the following desk:
Sylvia’s TSP Installment Funds Primarily based on Life Expectancy for the Interval 2024 -2027
Some observations from the desk that illustrates Sylvia’s annual and month-to-month funds for the years 2024 by means of 2027:
1. As Sylvia will get older, the only life expectancy issue decreases.
2. Sylvia’s $1,200,000 beginning conventional TSP account steadiness (as of 12/31/2023) usually decreases by means of the years however can enhance relying on funding efficiency.. Her annual cost will fluctuate from one 12 months to the following relying on the funding efficiency of the account throughout the earlier 12 months.
3. If Sylvia is worried or uneasy concerning the variation within the annual cost for the aim of assembly his annual finances wants, she is allowed to change to mounted greenback installment funds (month-to-month, quarterly or yearly) (minimal month-to-month quantity $25) that she will be able to enhance, lower, and even cease.
4. If Sylvia does change to mounted greenback funds, then beneath a brand new TSP rule (that took impact August 2020) Sylvia can change again to receiving funds primarily based on life expectancy.
5. As soon as Sylvia turns into aged 73 (reaches her required starting date and subsequently her conventional TSP account is topic to required minimal distributions), she will be able to change to the Uniform Lifetime Desk within the dedication of her annual cost. The rationale that Sylvia could need to make that change is as a result of the life expectancy components within the Uniform Lifetime desk are usually bigger than the life expectancy components within the Single Life Expectancy desk. This change could lead to a smaller annual cost (and subsequently smaller federal and state earnings tax liabilities on conventional TSP funds).
6. Earlier than Sylvia reaches her required starting date of age 73 in 2031, the TSP will withhold from every month-to-month cost a minimal 20 % federal earnings tax. As soon as Sylvia turns 73 and informs the TSP to make use of the Uniform Lifetime Desk to compute her month-to-month cost, the TSP will maintain a minimal 10 % federal earnings tax.
7. The TSP doesn’t withhold state earnings taxes from conventional TSP funds. If Sylvia lives in a state which has a state earnings tax, then Sylvia should make preparations to pay the state earnings tax that she owes on her conventional TSP funds.
8. To request a set installment cost or installment funds primarily based on life expectancy, a TSP participant should log into his or her “My Account” at www.tsp.gov and examine on the “Withdrawals and Adjustments to Installment Funds” hyperlink on the menu. From there, a TSP participant could have entry to a web based instrument with which to begin withdrawals.
