What Are All The Different Options Available For Your TSP When You Retire?

When it comes to retirement, there are several factors to consider in the years leading up to this significant life event. You’ve certainly heard a lot about 401(k)s, but if you work for the federal government or the military, you don’t have a 401(k). There is another option for you called a Thrift Savings Plan, or TSP.

What exactly is TSP? 

The thrift savings plan (TSP) is a sort of retirement investment program available solely to government employees and uniformed military personnel, including members of the Ready Reserve. It is a defined-contribution plan that provides government employees with many of the same benefits as private-sector employees. A TSP is quite similar to a 401(k) plan.

The amount you and your agency or service, if you are qualified for agency or service contributions, put into your account throughout your working career, as well as the earnings accumulated over that period, will determine your retirement income one day.

What are your options with TSP after retirement?

Several alternatives are open to retirees of the federal and military services about their TSP accounts. There are advantages to each option. Despite the fact that there is no one-size-fits-all plan, by better knowing the alternatives accessible to you, you may devise a strategy to take full advantage of the Thrift Savings Plan’s benefits in your particular position.

4 options available

As soon as you are ready to retire, there are 4 options you can choose from:

• Leave the money in your TSP account
• Make monthly withdrawals
• Annuitize your TSP or
• Transfer the TSP to an IRA

Now let’s explain each of these options. 

Leave the money in your TSP account

You can leave your money in the TSP just like you would if you were working, if you choose this option. This means you can’t contribute to the TSP or take out loans on your account anymore, the two primary distinctions. Your investing options are the same and you may still make adjustments to your account as if you were still employed. If you don’t require rapid access to your money, it’s a good idea to let it be and let it grow.

Your TSP retirement savings can be accessed before the age of 59 and a half, which is one of its greatest advantages. If you retire at the age of 55 or later, you can access your TSP without incurring a penalty. TSP benefits can be accessed immediately upon retirement if you are a special category employee (SCE) and retire in the year you reach 50 or later.

Make monthly withdrawals

At age 55 or older, you can begin taking pre-determined withdrawals without incurring an early withdrawal penalty. If you’re a “Special Category Employee” (SCE) like a police officer, fireman, or border patrol officer, you may be eligible for retirement benefits as early as age 50. In order to avoid a penalty, everyone else must wait until they are 59 and a half years old.

If you start taking money out of your account, you should be informed of the potential tax consequences. The kind of contributions you’ve made throughout the years determine how much tax you’ll owe. Roth TSP distributions should be tax-free if you contributed post-tax dollars to the account. Taxes must be paid on Traditional TSP distribution if contributions were made with pre-tax dollars.

Annuitize your TSP

With this option, for the rest of your life, you’ll get a fixed monthly payment from an insurance company (Met Life) for the money you’ve saved in your TSP. In terms of instant annuities, there are several options, such as Life alone, Life with period certain, Joint life, and Life with remainder.

The greatest monthly payout is provided by the Life-Only Immediate Annuity. The monthly annuity payout falls as you add more options. Each of the immediate annuity alternatives mentioned requires a person to forfeit access to their TSP amount. Upon the insured’s death, the rest of the life with remainder annuity would be distributed to the beneficiary. The essential benefit of an instant annuity is that it provides a lifelong source of income certainty. 

Transfer the TSP to an IRA

This is the fourth choice, which is beneficial since it gives you more control over your money. Many people choose this option to take their whole TSP and move money to an IRA.

To repeat, if you make regular withdrawals, your investing possibilities will be restricted. In the event that you want to annuitize your TSP, you can only pick one annuity alternative. If you elect to let it grow on its own, your investment alternatives are restricted, and the person in charge is unaware of your financial objectives.

You can accomplish all of the first three possibilities with this option, but with greater control because an IRA is yours to do whatever you want with it. If you decide an annuity is suitable for you, you may buy one out of an IRA and have complete control over how you spend your money. Find an advisor that understands your specific goals and risk level so that you may enjoy development while avoiding unnecessary risk while leaving the funds to grow in a safe environment.

After you retire, you will face a crucial decision about your Thrift Savings Plan (TSP). Given that there is no impending deadline, this is not a decision that needs to be made in a hurry either. Take your time and make the choice that will benefit you the most!