First Time TSP Withdrawal, question

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LaurenRose
Posts: 79
Joined: Fri Sep 23, 2022 12:33 pm

First Time TSP Withdrawal, question

Post by LaurenRose »

I'm a federal retiree about to make my first TSP withdrawal.

Does anyone know if they allow you to designate the transaction from a particular fund?

Is the typical process to rollover to an IRA at a brokerage and then cash out from there?
PoppyA
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Joined: Sat Oct 11, 2014 4:24 pm

Re: First Time TSP Withdrawal, question

Post by PoppyA »

No, you can’t pick a particular fund.

What are you trying to do? Make a withdrawal & pocket the $? You don’t have to roll it into a ROTH to make a withdrawal. You can just take $ from TSP.
Topic Author
LaurenRose
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Joined: Fri Sep 23, 2022 12:33 pm

Re: First Time TSP Withdrawal, question

Post by LaurenRose »

great, sounds easy - I'll just have them sell and send the proceeds to my checking account.
PoppyA
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Re: First Time TSP Withdrawal, question

Post by PoppyA »

Don’t forget to consider the tax consequences if any….
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Info_Hound
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Re: First Time TSP Withdrawal, question

Post by Info_Hound »

Also plan for the transaction to take time, it will not happen in just a day or so.
MnD
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Re: First Time TSP Withdrawal, question

Post by MnD »

I suggest you read this booklet on your withdrawal options from your TSP account.
https://www.tsp.gov/publications/tspbk25.pdf
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
Trapper
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Re: First Time TSP Withdrawal, question

Post by Trapper »

TSP withdrawals is a hot mess right now, and has been since the new company & website took over in May 2022.
New company is changing tax withholding on me without notification or consent. This has happened to me twice now.
Friend just tried to change his monthly draw and they will only allow an amount equal or great than his RMD at age 72, which is much greater than he wants, and is in violation of TSP rules which state a $25 minimum.
Long wait times, and even the supervisors at the call center do not have an understanding of the TSP.
Errors on their part are not corrected. Blame is placed on a Federal Holiday, or some erroneous user error, or a “glitch” in the system.
Be very cautious
chemocean
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Re: First Time TSP Withdrawal, question

Post by chemocean »

Trapper wrote: Mon Jan 23, 2023 9:41 am TSP withdrawals is a hot mess right now, and has been since the new company & website took over in May 2022.
New company is changing tax withholding on me without notification or consent. This has happened to me twice now.
Friend just tried to change his monthly draw and they will only allow an amount equal or great than his RMD at age 72, which is much greater than he wants, and is in violation of TSP rules which state a $25 minimum.
Long wait times, and even the supervisors at the call center do not have an understanding of the TSP.
Errors on their part are not corrected. Blame is placed on a Federal Holiday, or some erroneous user error, or a “glitch” in the system.
Be very cautious
I understand that each retirement type accounts (IRA, 401(K), etc) needs its own RMD and can not be aggregated with other retirement types accounts. I always was under the impression that since TSP is its own retirement type account, you will need to take your RMD for TSP from TSP. RMD withdrawal rules probably trump minimum withdrawal amounts. My understanding is that all taxable withdrawal from TSP require a 20% tax withholding.

Is your complaint that they are not using the new 2022 Table III for RMDs or that TSP have not updated the RMD rules according to the passage of SECURE 2 that passed late December (three weeks ago) for someone turning 72 in 2023?
chemocean
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Re: First Time TSP Withdrawal, question

Post by chemocean »

It takes a week from TSP to make the ACH connection between TSP and the receiving bank, including two mini-deposits I think. You can make this connection between TSP and the receiving connection prior to wishing to make the withdrawal. I recall the link to make this connection is called "financial institutions" and is located in the list on the upper right-hand corner of some TSP page.
If you don't make this ACH connection prior to trying to make the withdrawal, this connection will become part of your withdrawal process the first time you use that financial institution as the receiving institution and the process will take over a week to complete.
Trapper
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Re: First Time TSP Withdrawal, question

Post by Trapper »

The person making the withdrawal request is less than 72 years old….
The tax withholding is directly from TSP publications.
Chemocean, you respectfully don’t know what your talking about and misleading this conversation.
chemocean
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Re: First Time TSP Withdrawal, question

Post by chemocean »

LaurenRose wrote: Sun Jan 22, 2023 5:10 pm
Is the typical process to rollover to an IRA at a brokerage and then cash out from there?
If you withdrawal from TSP directly as a taxable event. You will receive a 1099-R from TSP.
If you rollover a portion of the TSP into an IRA, that is a non-taxable event. If the rollover is done correctly, you will not receive a 1099R from TSP.

Once in the IRA, your withdrawal and tax withholding options are greater. You will receive a 1099-R for withdrawals from the IRA institution.

Once the funds get transferred to your IRA, the balance of that IRA can be aggregated with other IRAs and you can chose which IRA to take the RMD from. For RMDs, remember RMDs are determined by the December 31 balance of the previous year. So, make rollover in mid-December for the next year.

Also, for those over 70.5, you can take qualified charitable distribution (QCDs) from your IRA, but not your TSP.
When you reach RMD age, QCDs count towards your RMD if the QCDs are taken first.
I plan to adjust my aggregate IRA balance in mid-December so that my target charitable contributions the following year will be less than or equal to my RMD. Then, make all my charitable contributions as QCDs.
This will require me to regularly transfer funds from TSP to a IRA as my total IRA balances get depleted by RMDs with time (and age).
chemocean
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Re: First Time TSP Withdrawal, question

Post by chemocean »

Trapper wrote: Mon Jan 23, 2023 11:10 am The person making the withdrawal request is less than 72 years old….
The tax withholding is directly from TSP publications.
Chemocean, you respectfully don’t know what your talking about and misleading this conversation.
Thank you for point out my incorrect generalization. I tried to find the TSP publications on the new website, but they do not seem to be available.
You are correct that the tax withholding depends on whether withdrawals are periodic or non-periodic.
I have annual small annual withdrawals. My comments were based on making an additional non-periodic payment (partial withdrawal in Jan 2022 before RMD age) in which I could not find a way to opt out of the 20% mandatory tax withholding on the prior website.
So for clarification, here is what I found on the new TSP website. My mandatory 20% tax withholding is consistent with the text below.

From TSP:
How Are Tax Withholdings Calculated?

Default withholding is the amount of taxes that will be deducted if you don't make a choice. These defaults apply:

For the taxable portion of your payment that is eligible for rollover but not directly rolled over, federal withholding is calculated at a flat rate of 20%. This withholding is mandatory.
For the taxable portion of your non-periodic payment that is not eligible for rollover, withholding is calculated at a flat rate of 10%. You may opt out of this withholding or change your withholding.
For the taxable portion of your periodic payment that is not eligible for rollover, and was initiated prior to 2023, default withholding will be taken according to the wage withholding tables as if you were married, claiming 3 allowances, unless you choose otherwise. If your payment is initiated after 2022, wage withholding tables will be used as if your single with no exemptions, unless you choose otherwise.

Minimum withholding is the amount that must be deducted, regardless of your choice. Generally, the minimum federal withholding is always the mandatory 20% withholding that must be taken on the taxable portion of a payment that is eligible for rollover but not directly rolled over.
Topic Author
LaurenRose
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Re: First Time TSP Withdrawal, question

Post by LaurenRose »

Thank you for the feedback. I am not yet involved in RMDs since I am still in my early 60s.

I realize there are tax implications, since this a tax deferred account.

From reading the accounts of some of the problems posters are having, it might warrant a decision on my part to just leave some funds in the G Fund and just move the rest of it out to a regular brokerage. Staggering to think about - but it shouldn't be.
cvn74n2
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Re: First Time TSP Withdrawal, question

Post by cvn74n2 »

I made the decision to close my TSP account after a partial withdrawal SNAFU involving Combat Zone Tax Exempt money in a Traditional TSP account (see my other posts on the issue for more info).

I did a direct rollover to my Traditional IRA via FBO check for the taxable portion and an indirect rollover to my Roth IRA with the tax exempt money.

I chose physical checks vice ACH to have some control and not get lost in the system.

The 1099-Rs I just received correctly characterized these activities as non-taxable events.

The G Fund was not worth it to me for the time and headaches the TSP systemic problems were causing. Based on other issues (e.g., missing/incorrect RMDs, undocumented minimum partial distribution requirements, missing beneficiaries on file, etc...), I suspect others may come to the same conclusion.
MnD
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Re: First Time TSP Withdrawal, question

Post by MnD »

LaurenRose wrote: Mon Jan 23, 2023 2:05 pm Thank you for the feedback. I am not yet involved in RMDs since I am still in my early 60s.

I realize there are tax implications, since this a tax deferred account.

From reading the accounts of some of the problems posters are having, it might warrant a decision on my part to just leave some funds in the G Fund and just move the rest of it out to a regular brokerage. Staggering to think about - but it shouldn't be.
There are changes in withholding options being implemented right now which are supposed to go live on the TSP web site Feb 1.
Also sometime in December an error was introduced into the system for setting up periodic (installment) payments which linked the minimum installment payment to an RMD, even for people far younger than requiring _any_ RMD.

I would not make a hasty decision but rather wait until Feb 1 to see if the updates to the withdrawal section on the website were successful.
There's no question that the system can be clunky and that recently, the new recordkeeper is experiencing service issues.

It's good you would keep your G funds at TSP regardless.
The people who are in response pulling all funds out and closing their account are IMO cutting off their nose to spite their face.
A risk free stable value like fund that earns intermediate term treasury rates is a dream come true for retirement aged people.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
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SquawkIdent
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Re: First Time TSP Withdrawal, question

Post by SquawkIdent »

Info_Hound wrote: Mon Jan 23, 2023 8:38 am Also plan for the transaction to take time, it will not happen in just a day or so.

If I already have my bank account hooked up to ACH out of the TSP, how many days after I put in my partial request (before 12 noon) would it take for the $$ to be deposited into my bank account? Thank you.
whelandw
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Re: First Time TSP Withdrawal, question

Post by whelandw »

DH has been taking RMDs for several years. This month (Jan 2023), he received his monthly disbursement with only 5% withheld for Federal taxes. He has requested his monthly installment, based on life expectancy table to withhold at a single rate with zero allowances and an additional amount of $400. They withheld $110 for federal tax for January.
BTW, he is still waiting for the RMD end of year catch-up "check" that was supposed to be sent before end of the year to arrive (now more than a month late). I don't expect to see it for awhile with our unresolved current debt ceiling problem (although the last TSP rep (#6) said it would be sent electronically instead of a check when the debt problem is resolved). :oops: I have started the process of opening an IRA account at a broker to receive my TSP account (too young for RMDs), hopefully avoiding these issues when the time comes. This new TSP system is FUBAR.
cvn74n2
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Re: First Time TSP Withdrawal, question

Post by cvn74n2 »

I am not sure where MnD found the information on website/back office updates since nothing along those lines are reflected on the TSP website, FRTIB minutes, or GovExec / FedWeek that I have found. If true and successful (not a sure thing with the current contractor/subs which have been formally in place since May 2022), then perhaps some/many/all the current issues will be resolved.

Another thing to keep in mind is the inability to convert Traditional TSP money to Roth TSP. This has been a known request from participants since at least 2017 but not acted on due to antiquated back-office software per the FRTIB. I had hopes when they announced and implemented the out-sourcing of back-office processes, but nothing has been suggested along those lines for future implementation in any official channel I am aware.

While the G Fund is nice, if getting access to it to use as a pseudo-checking account is this hard, imagine later in life when not all the faculties are fully operational. It was worth it to me to give up some basis points in order to consolidate my TSP, 401k, Traditional and Roth IRAs into one firm for ease of management by myself, my wife, and my kids when I pass.
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