TSP in Retirement

hello to all you federal employees out there uh this is brad bob and i'm back to talk more about your federal retirement and today i'm going to talk about probably what is the most asked question about federal retirement that is what do i do with my thrift savings plan at retirement so with that being said uh let's dive in let's talk about your tsp in retirement so when you get to retirement or leading up to retirement you probably should be thinking about this and i want to clarify one thing right away you don't have to do anything and you especially don't have to do anything right away in fact you can't do anything until you've been retired for 30 days okay so you're retired you can't do anything with your tsp for 30 days right so first option and this is the one one that i hear about a lot and that is tsp tsp annuity okay and what is the tsp annuity so the tsp annuity is actually an annuity it's an immediate annuity offered by metlife through tsp and what that means what that does for you is you take your lump sum okay let's say you have five hundred thousand dollars in tsp you take that and you give it to metlife metlife says thanks we appreciate it we're gonna guarantee you a payment of for example two thousand dollars a month for the rest of your life and oh by the way if you die next week that 500 000 is ours so what you're doing is you're giving up your principal for a guaranteed payment for the rest of your life and that's the way the tsp annuity works now there are different combinations of tsp annuities so you can get a lifetime annuity with return of principal you can get a joint lifetime annuity for you and your spouse you can get lifetime with 10-year period certain and each one of those things that you add on is gonna reduce your two thousand dollars a month so if you make a joint then they may give you 1800 or 1700 a month versus 2 000 a lot but regardless of what option you take your tsp immediate annuity involves taking a lump sum giving it to an insurance company and then guaranteeing you a payment for a certain period of time okay so that's how the tsp annuity works now is the tsp annuity of fit for you that's up to you to decide uh to give you a little bit of information first retirement is is based on three different things people call the three-legged stool you've got your first annuity you've got social security and you've got boom your tsp okay those are the three things now what do social security and your first annuity have in common they're both guaranteed right and they both have cost of living adjustments now after the age of 62 but they're both guaranteed for the rest of your life so do you really want to give up access to all of your tsp to give to an insurance company in order to guarantee a payment and and i would say a lot of times that's just not a good fit i i can't say that i have seen a federal employee take the annuity um but that's not to say it hasn't been done so most of the time i would say this right here ends up not being a good fit or once people understand what it is they choose not to take that so what's option number two option number two is really simple leave it so just leave your money in tsp this is an option so advantage of leaving money in your tsp you don't have to do anything okay money can stay right there where you've had it for 20 10 20 30 40 years and so as far as uh leaving ntsp taking withdrawals has become a lot more flexible in the last um i don't know when they changed it maybe two years ago but withdrawals used to be really rigid and now they're a lot better now you can choose where you're going to take money out of when it comes to traditional tsp and roth tsp okay so that is one big benefit that they've added with the new withdrawal rules i one thing you cannot choose is what funds to take your money out of you can't say i want this money to come from the sea fund or i want this money to come from the g fund however you were invested if you are invested in 60 c 20 i and 20 g then your withdrawal is going to come out 60 20 20. okay so that's how your withdrawals will work now the other option is three would be transfer to an ira okay now i want to give you at least a couple words caution here now with leaving money in your tsp if you retire in the year you turn 55 or later you have immediate access to tsp okay so i'm gonna put here pre 59 okay prior to 59 and a half if you retie or if you're special category employees you're a law enforcement officer air traffic controller something like that if you retire in the year that you turn 50 or later then you have immediate access to your tsp so if you fit one of those where your law enforcement and retirement in the year you turn 50 or later or you're just a regular first employee retiring in the year of 55 or later then you want to be careful moving all your money out to an ira if you plan on taking distributions or if there's even a chance that you're going to take distributions or need to take money out of tsp then you want to leave some money in tsp because there's no 10 penalty for taking money out of it prior to night and a half with an ira in order to take money out of an ira prior to 59 and a half without penalty then you have to set up what's called a 72 t distribution and that gets a little more complicated and cumbersome where you have to take out the same payment over the time period of five years or something like that depending on depending on how it's set up but regardless tsp prior to 59.5 is going to be more flexible so if i'm working with somebody and they don't think say they're age 57 and they don't think that they're going to take money need to take money out prior to 59.5 we still leave some money in it in order to keep it open um again just in case an emergency happens and another another thing if you close tsp out then you can't go back to it okay so if you think an ira is a good fit for you and you think there's any chance you may want to go back to tsp at some point leave some money in leave a thousand dollars just to keep it open because you can always take that money in an ira and move it back into tsp now let's go let's talk a little bit about option three and and benefits of option three so if you transfer money from tsp to an ira you don't pay any penalties you don't pay any taxes all right now one thing i hear a lot between the two is why would i take money out of tsp tsp is as cheap as it gets and and that's just simply not true okay let's work with facts all right so tsp does not have very high expense ratios that is correct but most your major custodians they you can replicate the index that you have within tsp at any of your major custodians right around the same if not a lot of times lower costs than what you have in tsp so 10 years ago yeah that was probably true the tsp is probably the cheapest thing around now it's not really the case now another thing difference between tsp and ira and this gets to a roth portion is with tsp you have to take what are called rnds r m d's okay so r d's are required minimum distributions all right at age 72 you have to start taking distributions out and that's the case with tsp that's the case with an ira and that's also the case with roth tsp but if you have money over here in a roth ira you do not have to take distributions at the age of 72 okay so this is really important to know um and the reason being because a lot of times people with money in a roth ira they end up leaving that roth ira money there as long as they can why because that money is growing income tax free and it comes out income tax free therefore they leave that money there to grow and then pass on to beneficiaries and they want to pass on the beneficiaries they can even leave it there most likely for a period of 10 years after a person's death so a roth ira will give you more flexibility than roth tsp you do not have to take rmds from the roth ira but from roth tsp you do okay now one obvious difference between the two between tsp and ira are investment options okay within tsp you've got your five funds uh with um in an ira you invest whatever you want okay now how do we talk about expenses a little bit so your csi funds you can likely get those in an ira at any major custodian for right around the same cost could be a little bit less could be a little bit more but odds are your average cost is not going to be higher now one thing that's different or unique about your tsp is your g fund okay that's that's the only thing that's really unique as far as investment choices go your g fund it's it's supposed to get the interest of the 10-year treasury rate but it never goes down right okay the g fund makes gives everybody this warm and fuzzy feeling because it never loses money right okay i get it your g fund is unique um and really what your g fund is is that's your very short term bond holdings that's a way to look at that uh your g fund you cannot replicate that in an ira so if you leave money in tsp or if you really like your g fund then i leave some money in tsp and if you leave money in tsp look at getting the proper asset allocation to where if you like the g fund or that type of investment your very short-term bonds uh you may want to keep that money in the g fund in tsp and then the money outside of it um you get your longer-term bonds corporate bonds and in things like stocks and equities so that's a little bit about the investments between the two uh one other thing i'll mention is is what happens at death so i'm a federal employee i die i'm married i have two kids i actually have three kids i forget one sometimes um but married with three kids what happens when i die am i dead well if i have money in tsp then that money is gonna go to my spouse okay she has a choice she can take that money out okay she can do a transfer move it into an inherited ira if she can actually be in my spouse she can move it into her own ira but she can also keep what's called a beneficiary participant account and she can keep her own tsp in that beneficiary participant account and keep tsp but at her death then the money has to be paid out within um fineness and the tsp withdrawal rules but it's either 30 or 60 days that the money has to come out of tsp okay and be paid out and the reason that could create an issue is is let's say you have um let's say you have five hundred thousand dollars in it that five hundred thousand dollars comes out now that's immediately taxable okay all taxable income in one year if it goes to one beneficiary it's 500 000 of income um gonna put you up almost the top tax bracket if it's three beneficiaries you're looking at 170 000 or so of taxable income and the issue with that is your beneficiaries could lose a lot um could lose a lot more money in taxes than what they have to okay now if it's in an ira then they can move the money to what's called an inherited ira or beneficiary ira and then they have 10 years okay so your beneficiaries then have 10 years to take that money out so you know in my scenario that's 170 000 goes into this beneficiary ira and that money has to come out within 10 years right so what they what they would want to do at that time is do some planning uh first of all do they have any cash needs and then second what can i do to pay the least amount of taxes on this as possible and get some growth out of it so that's probably going to consist of taking money out over a 10-year time period so that they don't incur excess taxes but they don't need to so a little they're a little bit different as far as inheriting inheriting ira inheriting tsp all right um i think that's all um should give me a fair amount of information on the three options again just review briefly tsp annuity okay that involves taking the lump sum giving it to an insurance company they guarantee you a payment monthly for the rest of your life two is leave it you don't have to do anything with it you can leave it right there in tsp okay you're gonna have your same investment options that's not gonna change um there are some there are some issues as far as taking money out taking distributions it's structured you cannot choose which investment which fund you're going to take it out of you do have rnds from roth tsp also you may run into some issues there with beneficiaries inheriting the account ira um ira you can do a transfer you don't have any any fees or penalties charges anything like that for doing a transfer as long as it's done correctly and you can move money to the ira investments in the ira you have the most investment options okay you can really choose to invest in anything you want there within the ira and the ira also gives you more flexibility as far as leaving money to beneficiaries it gives those beneficiaries more flexibility and the other thing is the roth ira over here okay so if you have money in roth tsp you move that's rough ira then you are not forced to take rmds at the age of 72 like you are from roth tsp so i hope that helps i hope that gives you enough information to be dangerous when it comes to making a choice of what to do with your tsp or retirement and again hey if you like like videos like these click like click subscribe and i'll have a lot more coming soon thanks

Channel: Federal Retirement Planning

Views: 32,295

Keywords: TSP, tsp retirement, tsp retire, federal retirement, fers retirement, fers retire, thrift savings plan, thrift savings plan explained, thrift savings plan retirement, thrift savings plan investing, what do i do with tsp, fers tsp, thrift savings plan dave ramsey, fers annuity, tsp annuity, fers leo, fers law enforcement, fers atc, fers air traffic control, cfp for federal retirement

Id: fK3UHlJMEF0

Length: 17min 50sec (1070 seconds)

Published: Fri Apr 02 2021