Q: I retired from Federal Service under FERS at the end of May of this year with 24 years of service. I also turned 70 in early May of this year. My plan had been to purchase a lifetime annuity through TSP (METLIFE) in August of this year as annuity interest rates had typically been higher in August for the past few years (2006, 2007, 2008 and 2009). Unfortunately the rates have steadily decreased since my retirement and are now down to 2.750 percent, which is equal to the low of March 2009. Obviously this was not a good time to purchase an annuity. Therefore I have not made a decision or otherwise made any withdrawals of any sort on my TSP account.
I have researched both the TSP and your websites for guidance without yet gaining a clear understanding of my withdrawal options. While I am in the process of exploring other options I am still leaning toward the lifetime annuity (Joint Life with Spouse/Level Payments/Cash Refund Feature/100% Survivor Annuity).
TSP-536 (Tax Notice) provides the following statement: “Required mimimum distribution if you are over 70 1/2. If you are over age 70 1/2 and are separated from federal service, you must either withdraw your entire TSP account or begin receiving monthly payment by April 1 of the year following the year you turned 70 1/2. In addition, this April 1 date is the deadline for the TSP to start to distribute the IRS required minimum distribution, a minimum amount of the money in your account which you must receive each year.”
Then the TSP booklet titled “Withdrawing Your TSP Account After Leaving Federal Service” dated June 2007 provides the following on page 15. Under the third paragraph below “IRS Rules that Affect Separated Participants Who Are 70 1/2 or older.” “If you do not make a full withdrawal of your account before you turn 70 1/2, you may make a partial withdrawal through December of the year in which you turn 70 1/2. However, you must select a withdrawal option for the balance of your account before April 1 of the following year.”
Since I will turn 70 1/2 in November 2010, will I be required to take a mimimal withdrawal this year, or does that begin the year following my turning 70 1/2, or next year 2011?
If I am required to take a mimimal withdrawal this year (2010), can I continue to do that each year hoping at some point the annuity interest rates will go back up so as to purchase the lifetime annuity, or does taking the mimimal withdrawal this year then mean that I must decide and declare my withdrawal option (which may include the lifetime annuity) before April 2011?
A: If you reach age 70 1/2 this year and are no longer working, your first required distribution is not due until April 1, 2011.