Separating or Recently Separated from Federal Serivce?

The TSP is a great retirement plan in many ways, but for some folks it might make sense to make a withdrawal/rollover at separation.

Here’s what you need to know.

TSP Withdrawals at Separation
Take Control of your Retirement Savings – One Way or Another!

When may I withdraw from TSP? You have to wait at least 31 days following your Separation Date.

Following Separation, your agency notifies the TSP that you have separated from service.
In most cases, it takes about 2 to 4 weeks after the actual date of separation for your agency to notify TSP .   Per TSP form 77, you must wait 31 days following separation to make a Withdrawal, and  the TSP cannot process your withdrawal until your agency or service reports your separation date to the TSP.

How Much may I withdraw?  You can make a one-time Partial Withdrawal or one-time Full Withdrawal from the TSP.

Partial Withdrawal:
You are eligible to make a one-time-only withdrawal of part of your TSP balance (so long as you did not make an age-based in-service withdrawal at age 59½ or older).

For a rollover to your IRA, fill out form xx (available on TSP website under ‘Withdrawals’).  Unless you want the major headache of withholding for taxes, check the box that says ‘Transfer to an IRA’ and provide the account number and mailing info for your IRA custiodian (ie Fidelity, Schwab, Vanguard, USAA).

Full Withdrawal:

You also have the option of making a one-time-only Full Withdrawal from your TSP.

For a Full Withdrawal, you can choose between:

  •  Single Payment (Lump Sum).  You can withdraw your entire TSP account balance in a single payment.   Unless you are only over 59 1/2 and only withdrawing a year’s worth of living expenses, it is likely best to perform an IRA Rollover as mentioned above.
  •  Series of Monthly Payments.  You choose a fixed $ value of monthly payments.  TSP writes you a check every month until your TSP account is empty (note that you also have the option to have the checks rolled over directly to your IRA in this option).
  •  Life Annuity.  TSP calculates your life expectancy and generates monthly payments based on your account balance each year.
  • Any combination of Monthly Payments and Life Annuity mentioned above.
… While TSP has lower expenses on its annuities than just about anyone, I’m not too excited about today’s Annuity (Prevailing Interest) rates.  At the time of this writing, nothing would entice me to purchase a TSP lifetime annuity at a rate of 2.875%, but if we get back to the interest rates of the Jimmy Carter Years it might be a steal to lock in a lifetime annuity at guaranteed rates north of 10 percent.   The TSP annuity option- by itself– should encourage you to leave at least some money in TSP after separation.

What happens with my Roth Balance? If you have a Roth TSP balance, you can’t ‘cherry pick’  between  Traditional TSP and Roth TSP withdrawals.   If you have both a traditional (non-Roth) and a Roth balance in your TSP account, withdrawals you make will be paid proportionally from each balance.

Can I change my mind and put money back in to TSP later?  Yes!
When you separate from service, you can keep your TSP active as long as your TSP balance is $200 or more.   And as long as you have an open TSP account, you can transfer eligible funds (IRA or Qualified Employer Plan (401k)) in to TSP at ANY time.

What if I want the flexibility of an IRA now, but would like a TSP Annuity later?  I call this the ‘Have your Cake and Eat It, Too’ TSP Strategy.

This is a 3-step maneuver:

  1. A Partial Withdrawal now; followed by
  2. TSP Roll-in later; followed by
  3. Full  TSP Withdrawal after age 59 1/2.

1) In my instance, I am rolling most of my TSP funds out of TSP and in to my Fidelity IRA.   This gives me the option to pick from other index ETF other than the rather ‘Vanilla’ TSP Fund offerings (S&P 500 – C Fund, Russel 2000 – S Fund, EAFE Index – I Fund, and Lehman Aggregate Bond Index – F Fund).  I plan to leave some monies in TSP G Fund as my ‘Black Swan Event’ money.  If any stock index ever takes a major dip, I’ll have the opportunity to purchase one or more stock index funds (S, C, or I Fund) on this ‘buying opportunity’.  The G Fund is a great place to park cash- you get the returns of a 3-year CD with the liquidity of a Money Market Fund- There’s no investment product like it, anywhere.

2) … and since I can roll my IRA money back in to the TSP at any time, I plan on doing the Partial Withdrawal now to maximize the investment flexibility of my IRA.

3) If I ever desire an annuity or  a stream of monthly income after age 59 1/2, I can always roll the desired amount of IRA funds back in to the TSP to purchase an annuity or monthly income (‘Full Withdrawal’).

For More Reading:

Info Booklet on TSP Withdrawal options – TSP Withdrawal Info Booklet.

TSP Partial Withdrawals (includes all gory details, including the fact that your spouse must consent) – TSP Form 77.

TSP Full Withdrawals – TSP Form 70.

Current and Historical TSP Annuity Rates.

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4 thoughts on “Take Charge of your TSP at Separation (Withdrawal Options)

    • Because of the uniqueness of the G Fund, I would leave a small portion in your TSP. That way you always have the option of rolling-in money that you desire to be short-term or ‘safe’ yet still receive a decent return. As TSP director has said, ‘The G Fund has never had a bad day’.

      Reply
    • Rolling over your TSP? That’s silly. The TSP has some of the cheapest investment options the world. Why would you want to invest in garbage where you get nickel and dime’d?

      Reply
      • Lukertin –

        As a reader of the blog, you know that I’m a big fan- not a Hater- of the TSP.

        The biggest benefit of the TSP is that it provides industry-leading expenses- for 5 Vanilla index funds.

        For investors who desire exposure to other sectors like REITS, Emerging Markets, or Foriegn Bonds- You have to look elsewhere.

        Reply

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