You Have Options with the TSP

Thrift Savings Plan Options

The TSP is an excellent savings vehicle while you are working and for FERS employees there is matching on up to 5% of your contributions. When you get closer to retirement however it is important to understand your options to ensure you and your family receive the full benefit of the TSP.

Most employees do not understand the role of the TSP in their retirement. The vast majority of employees go through the retirement process and ANNUITIZE their TSP because this is most common option you receive from Shared Services. Let’s look at some of the implications of a normal annuitization of your TSP through the Post Office.

What happens when you Annuitize?

First, when you annuitize you are giving up your cash in exchange for a monthly check. Once you make this decision you no longer have the cash. This can cause serious problems if a family emergency arises.

Second, your money no longer grows. When you annuitize your TSP an interest factor is added at the beginning and it never changes. Everyone knows we are in one of the lowest interest rate environments in 50 years. This means this is the worst possible time to sell your TSP balance to Met Life (the company that administers annuities for the government).

Lastly, the biggest problem with annuitizing your TSP is the most significant. When you annuitize your TSP you are disinheriting your heirs. Once you convert your TSP to monthly payments you are essentially turning your TSP into another pension. Think about your pension for a minute. The only two people that can be paid from your pension are the employee and spouse. When you annuitize your TSP you are guaranteeing your kids will never see a dollar. Shared Services does not explain these implications and as a result most employees make this catastrophic mistake.

What should you do?

Our goal in writing this article is to make sure you understand these implications. What should you do……. it depends. Each employee has specific situations and circumstances that must be evaluated before taking action with their TSP. Our belief is there is no “one size fits all” and each person should be counseled by an expert on their TSP options.

As soon as you turn 59.5 you need to understand your options with the TSP. We encourage all employees who have met or exceeded this age to contact us. There are a lot of factors that go into a decision such as this and you should understand EVERY option.

Postal Benefits Group has been serving thousands of Postal employees across the country through its retirement seminars, and their book THE POSTAL BOOK. If you have questions about your TSP and other options please feel free to contact us.

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  • Douglas Bowyer

    Question…..to roll over must i be 59 and a half, or can i do it when i retire even though i am not that age yet?

    • David

      Douglas,

      Postal Employees have 2 penalty-free options when rolling over their TSP:

      1) When you retire, and are age 55 or older

      OR

      2) When you are still working, and are age 59.5 or older (this is your one-time, Age Based In-Service Withdrawal)

      So, in your situation you can do it when you retire if you are at least 55. If you still have questions just let us know!

  • Perry

    question?
    What other options are there aside from rolling over to a private IRA when I retire? Can I leave the accumulated value in the TSP and draw funds as needed at retirement (like in a savings account), with remainder going to my heirs? Thanks

    • David

      Perry,

      The TSP will allow you to withdraw out as little or as much as you want once you retire. The only concern we have with Postal employees leaving their money with the TSP is the lack of options. When you start drawing funds from your TSP the return you get on your money becomes very important. In an ideal world, Postal employees should live off the interest of their TSP so you never “kill the golden goose”. After everyone lost a ton of money in 2008 most employees moved into the G fund. The good news about the G fund is it is safe. The bad news is it is not keeping up with inflation which causes you to exhaust your TSP funds prematurely.

      We suggest employees look at other options that are just as safe as the G fund but can still give you returns that will help you keep up with inflation. These options are very popular, but you must qualify for them in that you cannot access more than 10% of your TSP balance in a year.

      If you would like more information on the other options we will be happy to write an article at a later date on how they work.

  • Ralph S

    HI I am over 59.5 Have made one transfer to a separate IRA from TSP. When I retire, can I also make a total withdrawal and place in a different IRA? 2ND my spouse is more than 10 years younger, so, it’s either total withdrawal at retirement, or a spousal annuity at 1/2 of annuity figure. Can I also make another withdrawal prior to retirement? and last but not least, are they any other methods of getting monthly payments, besides IRA (they have annuity too). Can I withdraw and place money in a CD certificate of deposit? Yes, I am aware I would pay taxes, but it seems the CD is a better option. Thank You

    • David

      Ralph,

      1) When you retire, you can rollover your entire balance wherever you want.

      2) Not sure of your question on number 2, so if you will clarify we will try to answer that for you.

      3) Because you have already taken your age based in service withdrawal you cannot make any other transfers until 30 days after you retire.

      4) There are tons of options out there that will allow you to take payments out on a systematic basis. We would encourage you to do anything but a CD because the rates are the worst they have been in years right now.

      Hope that helps! If you have additional questions do not hesitate to ask. Thanks!

  • Ralph S

    HI OK you answered question 2 with the answer of #3 BUT, you say there are many other options, my question now would be are they all annuties? I am just trying to make it all last as long as possible, and then leave some for spouse, and maybe even for children. Thanks again

    • David

      Ralph,

      When we say there are a lot of options you can pretty much transfer your TSP into any Qualified (CD’s would not be qualified so you would have to pay the tax on the entire balance before you could open the CD) plan. Qualified plan meaning an IRA or Annuity so to avoid the tax consequences you will be somewhat limited to the type of investment. There are thousands of qualified plans out there with the 2 most popular being IRA’s and Annuities. The reason most employees choose annuities is because most of them are guaranteed not to lose money. Second, they typically have the best distribution options (taking your cash) that allow your balance to last the longest and at the same time protect your heirs.

      Let us know if anything is still unclear. Thanks for your post!

  • http://www.steeltropics.com/ Tom

    Great tips David. My wife is within a few years of retiring from the PO and we are in the planning stage right now. Never too early I say.

    Thanks