Q. I plan on retiring next August at 57 years old. I would like to buy an immediate annuity but do not want to buy the MetLife FERS annuity. Their interest rates for the annuity are extremely low compared to other annuities. When I retire at 57 years old, can I buy another annuity and avoid paying 20 percent upfront tax when buying that annuity? Also, can I get my payments without the 10 percent penalty for not being 59½?
A. Before you go any further, I suspect that you are not comparing your options properly. In my experience, the payout rate (immediate fixed annuities don’t pay interest) offered by the TSP’s annuity is very competitive with retail alternatives. If you are using information provided by an insurance agent to make this decision, you are asking for trouble.
You may roll TSP money over to an IRA and use the money to buy an immediate annuity after you separate from service and before you reach age 59½ without being subject to any tax withholding.
TSP money paid out in the form of a life annuity is exempt from the early withdrawal penalty.
