TSP changes
Alan,
Are you familiar with the changes taking place in 2016 for tsp participants? If a currently retired individual (age 54) wanted to roll-out 80% of his TSP in 2015 and put into an IRA and take SEPP could he turn around in 2016 and take the other 20% out as a withdrawal from the TSP without penalty? If so could he do this as a lump sum or several partial withdrawals? Thank you
-Lewis
Permalink Submitted by Alan - IRA critic on Fri, 2015-09-18 22:21
Permalink Submitted by David Mertz on Fri, 2015-09-18 23:53
The circumstances seem to suggest that the individual did (or will) not reach age 55 in the year in which the individual separated from federal service. If that’s the case, in the absence of some other exception the individual will not be eligible for a penalty-free distribution from the TSP until the individual reaches age 59½.
Permalink Submitted by Alan - IRA critic on Sat, 2015-09-19 00:08
Unless he is a federal PSO that retired at 50. The recent “Defending PSOs Retirement Act” applies to distributions starting in 2016 and this will pick up thousands of federal employees as well as adding DC plans including the TSP to the prior DB plan exception.
Permalink Submitted by David Mertz on Sat, 2015-09-19 13:09
If the age-55 (or 50) exception is available for distributions from the individual’s TSP in 2015, I see no need for an IRA SEPP plan. If I understand the current TSP distribution limitations correctly, avoidance of penalties and the same per-year distribution amounts could be obtained by making a small partial withdrawal from the TSP in 2015, then a full withdrawal in 2016 as a mixed withdrawal consisting of a single payment split between an amount paid to the individual and an amount directly rolled to an IRA, and the remainder of the mixed withdrawal as monthly payments of a specific dollar amount expected to last until age 59½ (less than 10 years). This would avoid the inflexibility of the SEPP plan. Since the TSP monthly payments would be eligible for rollover, the amount of these payments could be made a bit larger than the amount actually needed and the unneeded portion of each payment rolled over to an IRA. If additional amounts become needed before age 59½, an IRA SEPP plan could be established later.