Q. I’m a FERS retiree, age 64, with a $36,000 annual pension. My spouse has a $40,000 annual salary. We have a rental property that brings us $24,000 a year. And we have a home mortgage balance of $500,000. Our living expenses so far do not require me to withdraw my $600,000 Thrift Savings Plan fund. I plan to live until age 85.
As I approach age 70½ with minimum distribution, what is the best tax strategy for transferring the $600,000 from the TSP into a private investment account? A lump-sum rollover into a Roth account after paying the taxes? A calculated annual withdrawal that would not push me into the next higher tax rate? Should I start withdrawing now at age 64 or wait until age 70? What type of private investment accounts best mirror the TSP accounts?
A. I suggest that your default approach should be to take the required minimum distribution and only take more, or withdraw the money sooner than necessary, if something compels you to do so. Finding a compelling case is up to you and your tax preparer. The closest things you’ll find to TSP funds, outside of the TSP, are Exchange Traded index Funds, or ETFs. iShares is the leader in these, but they are produced by a variety of firms, including Vanguard. iShares comps for the TSP funds are: IVV for the C Fund, IWM for the S Fund, EFA for the I Fund and AGG for the F Fund. Unfortunately, there is no equivalent for the G Fund, which is one of the arguments for sticking with the TSP for as long as possible.