Thrift Savings Plan distribution to IRA R/O
Federal employee retiring 12/31/2010 at age 56 wants to execute $ 400,000 IRA R/O from Thrift Savings Plan yet retain $ 80,000 balance of other funds in qualified Thrift Savings Plan. Goal is to take annual distributions of
$ 20,000/year for the 3.5 years until he turns age 59.5 thereby leaving the IRA R/O intact until after age 60. Is this an allowable split of his funds?
Permalink Submitted by Alan Spross on Thu, 2010-12-23 16:57
Yes, this is fine as long as the TSP allows those distribution options. Due to the age 55 separation exception to the early withdrawal penalty, his annual 20,000 distribution will be penalty free and he will not have to implement a rigid 72t (SEPP) plan to get his penalty waived.
A 72t plan on the full balance of 480k if all was rolled over would generate slightly more than the 20k annual distribution, but would have to be maintained for 5 years. This way, if he decides to pursue new employment he could preserve his retirement assets and roll over the remainder instead of taking the 20k in annual taxable distributions.