Ep #79: 7 Things You Can NOT Do in TSP in Retirement

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Retirement can be challenging, especially when it comes to managing your finances. One of the biggest mistakes you can make is assuming you can do anything you want with your thrift savings plan (TSP) after retirement. As a federal employee, you have phenomenal benefits, but as with any other tool, they have strengths and weaknesses. Knowing them can save you lots of money!

Tune in to today’s episode, where Micah and Tammy are sharing the seven things you cannot do with your TSP in retirement and will help you understand the rules governing your TSP in retirement to avoid any costly mistakes.

 

What We Cover:

  1. Overseas managing TSP
  2. 5 core funds
    • Mutual fund window
  3. Inability to convert from pre-tax to Roth in the TSP
  4. No QCD’s
  5. No ability for table 2 for distributions for RMDs
    • How to calculate the RMDs
      • 12/31 Account Balance / Applicable divisor = your RMD
      • Table 2, has a different RMD.  
  6. Qualified Longevity Annuity Contracts (QLAC)
  7. Pro-rata distribution

 

Action Items:

  1. TSP webinar on withdrawing items 
  2. Withdraw plan in retirement
  3. Explore one of these new ideas to see how it might fit for you.

 

Resources for this Episode:

 

Ideas Worth Sharing:

But HSAs give such a better benefit, in my opinion. It's like an extra Roth IRA account that we can save and build for the future. – Micah Shilanski Click To Tweet

Well, I think because of employees not having the ability to get matching funds outside of the Thrift, you have to put your money in the thrift to get matching, and you only have five choices. – Tammy Flanagan Click To Tweet

The third thing you could not do inside of the Thrift in retirement time is Roth conversions. You have you do not have the ability to take your pre-tax money in the TSP and convert it to the Roth TSP. – Micah Shilanski Click To Tweet

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Full Episode Transcript
With Your Hosts
Micah Shilanski and Tammy Flanagan

You can spend. You can save. What is the right thing to do? Federal benefits, great savings plans too. You can save your own way, with help from Micah and Tammy. You can save your own way. Save your own way.

 

Micah: Welcome to the Plan Your Federal Retirement podcast, I’m your host, Micah Shilanski, and with me, as usual, is the amazing Tammy Flanagan. Tammy, how’s it going? 

 

Tammy: I’m doing great, Micah, it’s good day in paradise. And I’m looking forward to today’s podcasts. We’ve been having a good conversation leading up to it. So now I’m ready to dive in and see what we can share with our listeners today. 

 

Micah: Tammy, I’m super excited about you know, we’re just joking. For our listeners that kind of flubbed that intro a little bit. I had to redo it cuz I flubbed the first one anyways, so we’re just gonna go into it. 

Tammy: That’s why Micah always starts it off because I’m not good at intros. I need a live audience so I can see your faces and all I see is Micah’s face which is a nice one to look at.

 

Micah: We’ll leave it at that. But you know, Tammy, on that note a little bit you and I have bounced around the idea a little bit about one of these podcasts are turning into kind of a live stream and actually being able to see the audience and being able to interact. So that’s something that we’re thinking about. If that’s something that interests you, as our listener and you think would be beneficial, then shoot us an email [email protected]. Let us know you’re interested in that. Because our goal is to help transform the lives of federal employees, another million federal employees retire. And so we want to figure out the best way to do that. We’d love your feedback. That sounds Tammy?

 

Tammy: I think it’s a great idea because we love interacting with people. That’s where we shine. We’re good at answering questions, good questions, dumb questions, any kind of questions. We love them all. 

 

Micah: Yeah, we love them all. Well, speaking of things that we like to do, we also like to think talk about how great your benefits are. But Tammy sometimes we do like to spend a little bit of time highlighting the weaknesses not to pick on the benefits. Let’s be really clear. You have a phenomenal set of benefits but like any tool, their strengths and weaknesses and sometimes when we look at the weaknesses, we can really say okay,  am I okay with that, and maybe it is in your plan, which is fantastic. Or sometimes we look at those weaknesses, and hmm.. I need to make a change in our plan. And you came up with a great idea for us to chat about today, which is the seven things you cannot do in the thrift in retirement. Because there’s more things you can’t do while you’re working but we’re gonna leave those aside for right now. But I was thinking of this because I do know people and I think it’s fine for many people to take their withdrawals directly from the thrift. I mean, there’s monthly payments you can take you can do life expectancy payouts. So there’s a lot of good ways to simplify your life, you can have just another stream of income. But one of the things I’ve noticed and I know I’ve learned from you as well is that a lot of times we need to do more tax planning, yes, and to do some of these tax strategies, they’re very limited with the things you can do within the Thrift. And there’s some other things too, but I think that’s one of the big reasons why you might want to start looking outside of the Thrift in retirement for the ability to do some of these more creative things that can save you some tax dollars because like you always say we like to pay our taxes but we don’t want to pay more than our fair share. 

 

Micah: That’s right. I have a good friend who’s a CPA, Steven Jarvis. He has a great tax podcast as well. But one of the things that he talks about is we want to pay our bill but don’t tip the IRS. Right. Let’s give them a tip. And that’s the concept that we need to be looking at. And I was meeting with a younger federal employee the other day Tammy, and of course we’re going to talk about how it works in retirement a second but I’m talking about pre retirement, and she was really like, hey, I want to set this up for financial independence. What’s the best thing I can do? And for me, it was like, hey, Roth Roth Roth Roth Roth, haven’t talked about Roth and we mentioned Roth haven’t talked about tax free. Let’s talk about some Roth, right? And I’m not saying that’s the right answer for everyone. But that needs to be a component in your plan. It needs to be evaluated, and maybe it’s not 100% of your contributions go there. Maybe it’s 0% but you need to be having that conversation about taxes now and taxes in retirement, and we need to blend into this other kind of concept about how are we going to use these great benefits we have in retirement. Does that meet up with our plan or not? If it does, we’ll fantastic but if not, we need to know sooner than later. 

 

Tammy:Yep. And we meet so many people that are at that stage of retirement, beginning retirement, middle retirement, and boy, they’re making Roth I’m making Roth conversion, something I didn’t I think I guess earlier, why don’t we do more of this? And I think it’s because we’re starting to notice I’m starting to notice that my Medicare premiums based on my taxable income, my not yet I’m not quite this old yet, but soon. My RMDs are going to be based on how much pre tax money I have saved and I’m gonna have to start distributing that whether I want to or not, at least for paying taxes. So I wish I had more money set aside in tax free savings. We did a little bit with the HSA, the health savings account, which was a great thing to do. And we’re doing some Roth conversions now. But boy, if we would have done this 20 or 30 years ago would have been a mistake. In the Roth side. That would be our money completely without having to pay any tax on it now, but no, well, hindsight is 2020. Right? 

 

Micah: Yeah Tammy Is this the thing I see again and again is the HSA I love to get all choked up talking about this. But you know, I love that HSA plan and so many people use HSA is wrong, you’re just thinking about them as a flexible spending account. This is I’m going to put money in or I’m going to pull it out in order to pay it what yes, you could use it for that. But HSAs give such a better benefit in my opinion. It’s like an extra Roth IRA account that we get to save and build for the future. So I know me personally, what I recommend to a lot of people is me personally, we’re maximizing our HSA every single year. I really try not to pull money out of that unless they absolutely have to pay medical bills almost pay them from other monies right that I have and I want that HSA to grow why cuz I can invest that money, it can grow and it all grows 100% tax free. And I kind of think medical costs will continue to rise in the future. I don’t know what could be wrong. But assuming that’s the case, I want that money to be growing in the future so that in the future I got a big pot of tax free money that I can pay these things with. 

 

Tammy: Yeah, if the government plans give you money as kind of seed money in your HSA. They give you part of your premium that so definitely open season was coming up in November. We’ll be talking about those later this year. 

 

Micah: I love it. All right. So a lot of other stuff man we said we’re going to talk about is this let’s go down this other path but we have this great podcasts out there. It’s kind of outlined, let’s chat about the seven things you cannot do with your thrift in retirement. So Tammy, let’s kind of kick this off. Let’s build it. No real particular order but last one is a bit of a doozy. So we’re going to save that one to the end for you. But let’s kind of start it off with number one and this is something that kind of came up relatively recently with one of our clients, and it’s managing your TSP overseas.

 

Tammy: Yeah, and the one thing I noticed somebody had brought up the question they said when I retire, they’re gonna move overseas. They want to be retired overseas and they wanted to have an overseas number international number to call the Thrift. I started looking around for it. I don’t know that there is one. So that was the first thing I noticed. And I think you had said with a client that getting money out of the Thrift was a little bit more of a process from overseas where it may not be as simple as just, you know, checking into your TSP account and making that withdrawal option. So what what challenges did you run into? 

 

Micah: So when I was talking to the client about it, and they had called the thrift and that they’re going to be moving overseas, let’s say there’s going to move to Europe. Now it’s an allowable country right there is some countries in which you move to which you are not allowed to have investment accounts. If you live in those countries, you know, not just the terrorist watch list. It’s a little bit more expansive than that just as an FYI. But you know, these countries he could move to without an issue. But the comment from the thrift was saying, Hey, we may not accept your E signature on these documents because it’s coming from an overseas login, and you’re gonna have to get it notarized in person. He’s like, Hey, I’m moving to a country. They don’t really do notaries, they’re like, that’s not a problem. Just go to an embassy. He’s like, Well, it’s not a problem in theory, but in reality, I don’t live anywhere close to an embassy, right? So I got to make an appointment. And then we were chatting I said, You know what you should call the embassy and you should see how frequently they actually do notary appointments. And he says, and I do it, and they don’t do them all the time. They do set up for it for Americans, there’s a process that we can go and do, but this is going to be quite a hassle in order to get my money out of the Thrift. So does this make the Thrift bad? No. Does it make it more challenging in this particular case? The answer is yes. Now we’re not talking about a 30 day Euro trip here, right? We’re talking to someone who’s moving permanently to another country, and they don’t really have plans to come back to the United States. So there’s a lot of other pieces that go along here. But again, this is kind of the question, where are you moving to and how easily can you access those funds in retirement? 

 

Tammy: Right, that can be a challenge and you want things to be seamless and easy. I’d rather make a phone call or go online and have my money in my bank tomorrow, but that was not always going to happen. Be careful and do a little research. The other thing we noticed with what we didn’t notice we know this about the TSP is that there’s always been and we’d like this for the simplicity of it for growing your money. It’s a lot easier to understand five different funds rather than 55 different funds or 5000 different funds. So you having the G , C and f funds as we only have three to begin with now we have five G,C,F,S and I that’s pretty good for growing money. He said stretches across some broad markets and we’re just putting money in we’re not taking it out. But I’ve noticed with my own money when I do need to make a withdrawal and I need a cash lump sum for something having about 15 different choices to choose from we can pick the ones that are doing well so we can sell sell, sell high right so high. I always say them backwards and people think oh my goodness, she doesn’t even know. But I did I just always say them backwards so you can pick and choose the ones that are doing better and you can kind of move things around with the TSP really can’t do that. There’s only five choices to choose from. And you know, sometimes they’re all not doing so well. You know, last year was a case in point where if you had everything in the C,S and I fund been you know, they had a kind of a down year and all three because there’s such huge broad indexes. But there were some smaller mutual funds that did quite well. But we don’t have those in the thrift unless you go into the mutual fund window and that has its own set of consequences with fees and costs involved. Right. 

 

Micah: Yeah, I see a lot of the mutual fund window, please understand. We generally like to speak from a position of experience with this in reality not so much in theory. And so Tammy, correct me if I’m wrong, but on your end but listen, my I don’t have a lot of experience with the mutual fund window yet. I haven’t had any clients that really want to experiment with it. And so it’s so funny when you’re getting close to retirement like hey, do you want experiment with your retirement funds are like no, I don’t want to experiment my retirement funds not saying it’s bad, but just saying I don’t have the experience with it. But it does appear like another layer of complexity into the investments. And it doesn’t solve the larger issue, which is we’re going to talk about the last issue that we kind of see what the TSP doesn’t solve that, that’s there. So it does have a little bit more diversification. So if you want to be more active in managing it, which could be a con but might be a pro, maybe that mutual fund window is a good thing for you. But from a retirement perspective, not really seeing it as a great tool for us. 

 

Tammy:  Well I think because of employees not having the ability to get matching funds outside of the Thrift you have to put your money in the thrift to get matching and you only have the five choices. Some people do want more diversity within their investments earlier in their career and most of my clients are already retired or getting ready to retire so they’re gonna go into broader diversification they can do that outside of the Thrift, without the same fees and administrative costs. Is that they are from what I understand they’re pretty expensive. 

 

Micah: Yeah, the funds at least when I looked at it are fairly expensive for what you’re getting. So but that’s TSP me making changes. So we’re going to take that on the positive side. And on the younger employee side or the longer career in front of you kind of aspect of it. I don’t have an issue, Tammy, we’re having five investment funds. In fact, I took a class many years ago about the designing for 1k accounts and employer sponsored accounts and all these different things you want it to so we had to do a lot of research into it. Short answer is what they came out with was the ideal number of investment funds that any employer should provide is set. And it’s like whoa,  like there’s like 15 20,000 different fund options out there. What do you mean, you got to pick between seven. And the logic behind this was hey, look, when we’ve looked at all of these other plans and surveys, the plans that have more options, people do less because they can’t make a decision. Right? If you log on and you have a fidelity 401k account, I’m not picking on fidelity. They’re a great company just use an example. But if you log on to a fidelity 401k account and your employer has opened it up to all investment funds and they have all sudden now you have 20,000 different choices to make. Most people get overwhelmed and they do nothing and they leave their money in cash, which potentially is the worst option over a long term perspective. So the concept that they were showing, at least by this survey, was that if you reduce those investment options to seven then all sudden people can make decisions and now they can start moving their money and getting them to work. So not saying that’s a perfect answer that TSP has five I think it’s a great answer. It does really, really well.

 

Commercial: Dear listener, you know here at plan your federal retirement we love the Thrift Savings Plan for its accumulation power. This employer sponsored retirement plan gives federal employees unique opportunities to save for retirement. This is a powerful tool, but like all tools, you need to know how and when to use it. That is why we created a live online course where you can educate yourself on all your options with your Thrift Savings Plan. So if you want to make smart and informed decisions about using your retirement tools, save your spot for our upcoming live online workshop on the TSP led by Tammy Flanagan, and Micah Shilanski. Mark your calendars for June 28, 2023 and get your ticket today. 



Tammy: Right. It’s paralysis from too much analysis. Right? We run into that with the federal health benefits too because we have in any given part of the country 30 or 35 different health plans to choose from, what do people do? They don’t look at 30 or 35 brochures they stick with the plan. They help because they know how it works, works okay for them. And they don’t even go beyond that only two and a half percent of anybody who can switch plans during Open Season does, and usually it’s just going from standard to high option or from value into standard. I think having fewer choices makes it easier to understand your choices. You only have to understand five things.



Micah:  And there are  five good index funds, right at the end of the day, except for the G fund that’s a separate category, but the other four funds the F, C,S and I  are all index funds and so that you can buy them here.



Micah: Yeah thank you. Yeah, I mean, they’re big, right? The s&p 500 is 500 large cap stocks. That’s the C fund you own 500 Different companies. You’re not putting your money in one, right? And companies come in and out of the s&p 500 as well. Tammy,  It’s another kind of misconception is that say these are the same 500 companies, that’s not the case. The Dow Jones which is the Dow 30 stocks right, which is created way over 100 years ago 1890 I think someone will fact check me on that one but this 1890 or 1910 somewhere in there is what it was created and it had kind of 30 stocks all based on what had less than that had like 20 stocks was all based on railroads at the time and what how they were tracking it, and it slowly moved and morphed over time. And that’s the same thing we see with the s&p 500. The same thing we see with the Wilshire 4500, which the small caps as well as the MSCI index, which is the international funds. So you’re buying a lot of different investments with that one purchase which is generally a good idea because it helps with that diversification, but it’s more long term money. So again, I like the limits and options. It allows you to make a good decision. 



Tammy: Okay, I got a trivia question for you, which fund the C S or I fund,  is Keurig Dr. Pepper. Keurig Dr. Pepper is one company now. Keurig is the little coffee capture. If you drink coffee, everybody knows Dr. Pepper. So it’s an international Is it a small cap or is it large s&p 500 level?



Micah:  Who is the parent company of Dr. Pepper and Keurig?



Tammy:  I think either Dr. Pepper by Keurig the other way around, so they’re merged. They’re all like a company. 



Micah: I’ll go with C fund first and then maybe the S fund but I’m not gonna go with international that’s my guess. C?



Tammy: C is the C. They were added in 2018. I looked that up the other day if the only reason why I knew it. But I also noticed that last year, some of the funds that were added to the C fund, these are companies that were they’re all headquartered in the US, but they were developed in the 1800s. So it’s not just brand new companies that they pull in. It could be companies that have been around for 200 years. That that that was kind of interesting.



Micah: Boy another… Sorry, I’m gonna geek out on this one. So hopefully we lose our listeners will stay tuned in but another fun thing to do and I haven’t done this in a little while Tammy is go back and look, you take the s&p 500, so the C fund, and all of those are domestic companies, but then you look at where’s their revenue generated from? And it was like 40 to 50% of the revenue from most of the s&p 500 companies are generated outside of the United States. So there’s an argument to be made that the C Fund is a little bit more of an international investment. Yes, you’re buying domestic companies, but you have a broader international exposure and that’s a stat from a while ago, I’m sure it’s changed but it’s that concept of taking cups kid cups are not only United States, Dr. Pepper now not only United States Coca Cola not only United States right? So we can see these things and and how they’re broad and have a broad reaching, which again, is another great thing on the C on you’re buying a broad investment for long term purposes. You’re buying it for short term, you’re gonna run into a problem. In the long term purposes could do really well. 



Tammy: Toyota and Volkswagen or I fund companies and who buys Toyota and Volkswagen sweet new so I guess there’s you know, there’s you know, if you think you’re buying all international companies, you know, there are things we support, I guess the other way around, you know, the US companies are supported all around the world. 



Micah: I love it. All right. So that was just, that was just two of the top. So, I think number three is in Tam, you brought this up a little bit earlier. But the third thing you could not do inside of the Thrift in retirement time is Roth conversions. You have the you do not have the ability to take your pre tax money in the TSP and convert it to the Roth TSP. Tam, is that correct? 



Tammy: That’s right. And I get that question all the time. How do I move my traditional money into the Roth? I mean, you can’t. You know, the only way to get money into the Roth TSP is either to have it from payroll deduction, or to move. Let’s say you have a 401 K plan that’s in Roth. You can move that into the Thrift this qualified plans, but you cannot convert traditional money that’s never been taxed, and pay the tax on and convert it to Roth. You’d have to pull it out of the Thrift into an IRA and then pay the tax on what you converted. So not as easy as just moving it as an interfund transfer. 



Micah: And Tammy,  where this takes place. I think it’s two things right. Let’s talk about the employee than the retiree right? For the employer was meeting with a new new client the other day and they had a former 401k account at another provider, and they were going to move that into the thrift and they’re like, hey, I want to consolidate. I like to thrift. It makes sense, right? I had no qualms with that. But I said, Hey, before we do that, let’s look at the taxes. And they were like great news Micah. When I transfer this money from the 401k to the thrift there’s no taxes which they are 100% correct, which is great. But the taxes we were looking at Tammy was a future tax projection and saying should we do a Roth conversion today? So we had a former 401k account and before we think about putting money in the TSP, which could be a great option for you, is saying, Hey, do we need to do any tax planning with that? This particular client we kind of deem that says, hey, half the money we could transfer into the Thrift did have some long term savings, but the other half the money we need to do some Roth conversions with and we can’t do that and the Thrift. Now she’s under 59 and a half. So I’m really glad we had this conversation before. She transferred all the money in the thrift because there’s nothing that we could do about it. So these are things again, just know what these rules are and how they work. 



Tammy: Yeah, that’s just something that doesn’t apply to everybody but for some it does. Same thing with this next one. And this is one that I know how to say it, but I don’t know exactly how it works. It’s called qualified charitable distributions. If I’m not mistaken. And it’s a way that you can take your required minimum distributions and move them towards your favorite charity that you’re going to be giving to anyway, but this would reduce your taxable income if I’m not mistaken. In that way your Medicare premium may not go up when you take that RMD. So do I have it sort of kind of.



Micah:  You’re correct.  You do you do Tammy which is fantastic. So this is a QCD a qualified charitable distribution. And what the IRS says is that if you send money directly from your custodian to a charity, your IRA money, then that money is a distribution but as a tax free distribution, and you don’t have to pay tax on that money. It is reportable because the IRS is nosy, but it is tax free so it doesn’t show up in that taxable column on your tax return which helps reduce your Medicare premium. Now you could be thinking that says Mike, hold on a second. There’s no difference. I just take 20 grand out of my tsp and I turn around and I give $20,000 to a charity and it’s like the same thing. Well, it’s the same thing for the charity because they got $20,000, but it’s not the same thing for you on your taxes. And a couple of reasons with that is number one, we have our standard deduction, which today is what $26,000 in change. So if all you’re giving is $20,000 to charity, we shouldn’t say Oh, that’s fantastic charitable contribution. You’re giving $20,000. That’s less than the standard deduction so you’re not getting much of a benefit for it. When you use a QCD It’s almost like an extra standard deduction. Because what happens when I send it via QCD I don’t have to pay taxes on that money at all. Plus, I still get my standard deduction of $26,000. So it’s almost like I got a $46,000 deduction Tammy for doing the QCD. So it’s a really powerful tool. It is also the only other thing that we have that counts towards your RMDs those required minimum distributions. So if you have to take out 20 grand a year, but you don’t need the money and you want to give it to charity, well then fantastic. Let’s do the QCD with them, because now we’re not taxed on it. But the downside is we cannot do it with your TSP money. 



Tammy: Yeah, you have to move it out of the Thrift. Now can you do a QCD before your you’ve hit your RMDs like I could do it at 65 rather than wait till I’m 73?



Micah:  Oh, close the age for the QCD is 70 and a half it was pegged to the original RMD age but it was never adjusted. So you got to be 70 and a half years young and what I mean by 70 half is I really mean 70 and a half. So if you were born in January, that means you gotta be waiting until July to be sending out that money in order to account for that QCD.



Tammy:  Okay, a few more years I’ll be I’ll be right in there.



Tammy: Alright, so the next one is table two, what is table two? There’s tables for IRS life expectancy. And there’s one that’s for a single life. So it’s based on just this one person’s life expectancy. But my understanding is table two takes into account you and your spouse’s life expectancy, which can be a lot longer if you’re married to a younger spouse. Is that right?



Micah:  Oops, sorry, little wardrobe change right there. We had a little technical malfunction. This is actually the third time we were trying to record this episode. And apparently it’s so good that computers keep turning it off. At least that’s what I tell ourselves and so Tammy had to drop off unfortunately, we found out afterwards so I’m gonna jump in real quick and kind of do the rest of the podcasts. We really appreciate your guys’s support and understanding for little technical issues that sometimes we run into. So as Tammy was talking about, we were talking about these RMDs right, these required minimum distributions and with the TSP has so many great benefits but one of the challenges with RMDs is that they use what’s called table one for calculating your required minimum distribution. Now once we are 73 years young, potentially all this different had to change with a secure 2.0 which passed in January ish of 2023. They moved out our RMD age requirement in addition, age to 73, or potentially a little bit later based on when you are born, but the formula has stayed the same. The way the formula for the RMD works is they take your 1231 account balance and it’s divided by your applicable divisor and that equals your RMD. Your applicable divisor is your life expectancy the IRS has for you but there’s two ways we can look at your life expectancy is one is a single life table and that’s called table one. And that’s what most custodians use, and that’s what the TSP is going to use to calculate your RMD as well. There’s also a different table called a table two. If your spouse is more than 10 years younger than you then it’s going to extend your life expectancy at least based on the IRS man is he has to take out less out of your TSP account based on your RMDs those required minimum distribution. This is called using table two. This is really important to notice because a lot of custodians completely missed this including the TSP but in the TSP you cannot use table two to calculate it. So what’s the difference? We had a client that was going to retire he had remarried his wife was about 20 years younger than him. His first wife had passed away so he remarried and his wife was younger, and it based on the RMDs he was gonna have to get substantially more under the single life tables than if we use the joint life expectancy tables. But the only way to use the joint life expectancy tables, table two is to transfer the money out of the TSP account into an IRA then we could work with the custodian to say hey, we don’t wanna use table one and table two and here’s why we have to document that. This save the client 1000s of dollars in taxes just one year at a time times are life expectancy because we knew to ask the right questions. So it’s a great benefit that you have inside of an IRA. We can’t quite do inside of the TSP by quite me do I mean we cannot do at all. 



Micah: All right. Number six, things you cannot do in the TSP account while you are retired. This is a kulak a qualified longevity annuity contract. These get a little bit of a tense from time to time. Now anytime you hear the word annuity remember we take a stop we take a pause and say I need to get more information right? Annuities generally come with guarantees which can be really nice, but they come with strings and make sure they’re right for us. So a string that could be there. For an annuity contracts is time you put your money and you’re going to get a guarantee, but it’s going to be a time restriction before you can access it. Or an annuity could be, Hey, we’re going to guarantee you income for as long as you live but it ends when you die. So there’s a lot of different moving parts. These ones are pretty particular in the cold queue lacks qualified longevity annuity contract. You can put money in there up to about $100,000 but when you’re putting this in it is a deferred annuity, not an immediate annuity. So what does that mean an immediate annuity like the one with MetLife through TSP, which I’m not recommending just referencing, if you do that, when you give the money to MetLife they start sending you your money right away. That’s an immediate annuity. A deferred annuities. I’m going to put money in this contract, but I’m not going to take the income yet. I want to defer it. I want it to grow. Inside of these Culex we’ve only had a couple of clients be interested in the effort to make sense. But we carved out some money we put inside of a queue lack and is not counting your RMDs not counting your required minimum distribution. So that money is kind of set apart, which is nice, but then the money’s in a deferral path that you cannot get into you’re in your 80s I think it’s like 85 but when the income turns on, it’s a pretty substantial income. So the benefit is you’re gonna have this higher potentially substantial income coming in in the future, which is really nice. But you have zero access to that money when I mean zero access, I mean zero access you cannot get to it. So if you potentially will need that money for anything. This isn’t a good fit for you. It is a planning tool, but it is something that we have outside of the TSP that you don’t have inside of the TSP. But the seventh thing that comes up and Tammy and I talked about this all the time is pro rata distributions. The seventh thing you cannot do inside of the DSP in retirement, is TSP forces you to take pro rata distributions Said another way, you cannot choose where your money comes out. Now, this is a reason Tam and I’ve done a webinar on the TSP in talking about how important it is, and really things you have to know about the TSP to make sure it doesn’t blow up for you in retirement, or pro rata distributions are a huge part of this pie. Why do I bring that up? 



Micah: One of the things that works so well with the TSP is dollar cost averaging every two weeks the markets up, it’s down but you’re putting money in your buy, buy buy buy buy, market goes up and you buy market goes down into buy and it works out really really well for an accumulation standpoint. But now you’re moving from the accumulation standpoint to the distribution standpoint. It’s a great show me my money right you got to take it out. One of the things we don’t want our retirees really anyone is to sell when their accounts are down. Remember the concept is to buy low and sell high. We don’t want to buy high and sell low because that’s when we lose money. So we got to be very careful of this that’s my challenge with the TSP is it forces these proportionate distributions, you don’t get to choose which account your money comes from just like we had talked about before. When my clients go to retire, I like to have an account that they can access without risk of loss. Maybe that’s the G fund that’s 100% of their account is inside of there. Maybe it’s an IRA account. A C,D account, money marketing on something is that we get access without risk of loss due to the market. Why? Because markets will always go up and down even into retirement time. So how do we kind of protect that money? We really like these buckets, that TSP when you call them say, hey, send me $10,000, send me $1,000 A month whatever it is, however, you’re invested, they’re going to sell now the markets are going up. Maybe that’s not a bad thing, but when.



Micah: They could devastate your TSP account, and that’s really what we need to be careful of. So we don’t like their proportionate pro rata distributions. It makes it really challenging to plan in retirement, and it could be devastating for you. By the way there I know there’s a mutual fund window that’s out there as well. The mutual fund window does not remove that for proportionate distributions because you have to sell other mutual funds, move it over into the TSP total allocations where you take the money out. So that doesn’t quite solve that issue. All right, this podcast is all about action items. So what are a few action items that you should do? Number one, though, tsp webinars him and I went through a lot of the stuff in detail and really diving into the effects of how do we use the TSP in retirement is an overlooked tool for how to set it up. Everyone knows it’s part of your tool. It’s one of your three legs that government has put together for you in return, which is fantastic, but you got to know how to use that to get the most out of action item number two, what is your withdrawal plan for retirement? You need to create one right and I like these in writing. When x happens I’ll do Y right when I get close to retirement I start moving some my money maybe in the bucket strategy works out really well. How am I going to withdraw my money? How am I going to review my taxes? These are really important things that you need to think about and think about them before you have to make the decision do them. Actually then number three, explore one of these new ideas. It’s your money. Stick the Culex qualified longevity annuity contracts. They’re not appropriate for most people. But what I like my clients to have is to make an educated and informed decision and that’s what we want for you. How do you make an educated and informed decision about where you’re at in life and the things that you need to do? So take one of the seven things that we talked about go explore it a little bit more, see how that’s appropriate or maybe not appropriate for you, but get educated and get informed. This podcast is all about action items. So make sure you share this with a friend. That’s the last action item. Give us five stars share this with a friend we have a goal of helping another 1 milion Federal Employees and that’s only going to be succeeded by your help in passing this message along. Thank you guys so much. And until next time, happy planning.

 

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