Q. I will be 64 when I retire [Dec. 31, 2016]. I will have a mortgage of about $106,000 at 3.25% interest. The state in which I live does not have state tax. My TSP should have about $157,585 when I retire. Should I take a lump sum payment and pay off my house or roll over the money into a Roth IRA? What is the tax rate the government would charge if I take a lump sum when I retire?
A. You are asking for personal financial advice that is beyond the scope of this forum.
In general, I recommend that you hold onto your TSP account and its contents for as long as you can. The cost is the loss of investment return on the money and a loss of the flexibility that a large sum of cash can provide. Is there a benefit that will outweigh these costs?
I also don’t see any reason to convert TSP money into Roth IRA money. The cost is the loss of access to the G Fund and a tax bill. Is there a benefit that will outweigh these costs?
The tax you owe on your lump sum will depend entirely on your tax return for that year. The withholding rules and requirements for various TSP withdrawal scenarios are outlined on page 3 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
