ABOUT THE AUTHOR
Micah Shilanski, CFP®, is a distinguished financial planner known for his deep commitment to providing exceptional advisory services to his clients. As the founder of Plan Your Federal Retirement, Micah has dedicated his career to helping federal employees understand and optimize their benefits to ensure a secure and prosperous retirement. His expertise is widely recognized in the industry, making him a sought-after speaker and educator on financial planning and retirement strategies.
Micah’s approach is client-centered, focusing on creating personalized strategies that address each individual’s unique needs. His work emphasizes the importance of comprehensive planning, incorporating aspects of tax strategy, investment management, and risk assessment to guide clients toward achieving their financial goals.Micah Shilanski 00:00
Have you ever wondered that once you separate from service, what options you can do with the TSP, and if you transfer it to an IRA, what limitations you might have? Then stay tuned for this FERS Federal Fact Check. Hi, I’m Micah Shilanski with Plan Your Federal Retirement, and we have a really good question that came in today from Sam, who is a longtime listener of our podcast. Sam writes in and says, First, I’ve listened to your podcast for years, and it’s been a wealth of information, thank you. Well, Sam, you are most welcome, we’re happy to do it, now for my question, I am 54 years young federal law enforcement officer, and I plan to retire this summer at about 33 years of service. My plan was always to transfer my TSP to an IRA so I had more control. I planned then taking withdrawals from the TSP IRA immediately upon retirement, however, I recently read that if I do this transfer, the IRA rules would apply and I could withdraw nothing until 59 and a half. Is that true? Sam, that is a great question. Number one, I want to compliment you on your language right use the correct term transferring, not that nasty rollover word right, transfer from the TSP directly to the IRA to avoid taxes and penalties. Really good plan, really good thing to think about. You have a lot of options, but there is that limitation, so Sam, you read this correctly, but don’t despair, you have some good options here. What you could do, correction, let me answer your question, if you transferred your money to an IRA, then you don’t have a tsp anymore, you have an IRA, and all of those IRA rules apply, and you cannot touch the money without a penalty until 59 and a half. This is where we need to split a little options up. This is where, with a lot of clients that I like to retire now your law enforcement, which is fantastic, which means you get to access your TSP before 55 without a penalty. If you’re non law enforcement, non special provisions, you gotta wait till after 55 to do this, but if you separate from service, I would leave money in your TSP account, not the whole balance, right? But I’d leave a distributions for the next several years in your TSP, maybe in the G fund, just a thought, that’s not a recommendation, just a thought, that’s there, and then you can transfer the balance of your money into an IRA. Now, what’s happened? Now you have all the great controls inside of an IRA, you can do Roth conversions, you can do different investment strategies, you can really help that build, and that’s going to be our more longer term bucket of growth, and then we leave the TSP, so you can turn on your monthly distributions. This avoids the 10% penalty, but wait, there’s more. One of the things that you could also do is you can always transfer money from an IRA into an active TSP account, an open TSP account, right? If you took all the money out of TSP, it would be closed, then you couldn’t do it, but if you leave money in the TSP, and we do this with clients, we leave a couple years of distributions and in there, so let’s say we’re taking out $5,000 a month times 12 at 60 grand times two is 120 let’s add some taxes there, we’re gonna leave $150,000 in inside of this account, and as we use that account over time, I will then refill it with the income bucket, the growth bucket, back to the TSP, and kind of restock that account until we’re 59 and a half. Once we’re 59 and a half, maybe an IRA makes a little bit more sense for a little bit of more control options, so just different things you can do. So Sam, the answer your question is yes, you cannot take distributions from an IRA prior to 59 and a half without a penalty, unless you do something complicated called a 72t which you probably don’t want to do, but you can do a partial transfer, at least, some in the TSP and put the rest in your IRA account. If you have questions like this before you pull the trigger on a major life changing decision that you may not understand the full repercussions of, hit the pause button, talk to somebody that knows what they’re doing, you’re welcome to call us, call somebody else making sure you’re getting a second opinion on where you’re at, because this is your entire life savings, your retirement. I’m glad Sam is asking this question before he did it, and if he would have done it and close the TSP, then Sam would have contacted us, there’s not a lot we can do, so I’m super happy to get this question. So if you have questions like this, then feel free to submit them on the First Federal Fact Check, give our office a call, we want to make sure you’re getting great information, and like always, our goal is to help another 1 million Federal Employees with their retirement, so until next time, Happy Planning!