Q. In March 2013, at age 56, I am eligible to retire under FERS as a federal law enforcement officer with 23 plus years of service (20 as an LEO). I turn 57 on Oct. 11, so I will be forced to retire Oct. 31. Assuming I do not need the money immediately, what are my options with regard to my Thrift Savings Plan? I do not want to pay any penalty and want to pay as little in taxes as possible. It was suggested that I roll it over to an IRA so that in event that I need money in emergency I could withdraw it from my IRA without penalty and/or be taxed at a lower rate.
Also, are you aware of waivers that I could apply for that would grant an extension until age 60?
A. You should leave it in your TSP account for as long as possible. Not only is it a great investment environment, but you’ll be exempt from the early withdrawal penalty since you’re retiring during, or after, the year in which you’ll reach age 55. If you move the money to an IRA, this exemption will not be available.
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You really should already have a source of money called an emergency fund from which to draw money in case of an emergency. Most emergencies can be covered by insurance and credit cards. What emergency requires cash from an IRA or the TSP? If you don’t have an emergency fund you really aren’t ready to retire.
It may be that the person who suggests rolling your TSP account into an IRA may be gaining financially from the ‘advice.’ If and when you roll some or all of your TSP into an IRA, avoid loads and high expense ratios. Look for low expense ratio index funds such as those in the TSP.