Q. I am an air traffic controller who is retiring in two months at age 48. I have an outstanding Thrift Savings Plan loan for about $9,000. What happens if I don’t pay this off before I retire? Do I pay the 10 percent penalty, along with it being shown as income? Does this affect my monthly withdrawal from TSP using the 72(t) rule? Also, can I take a one-time partial lump-sum withdrawal and pay the 10 percent penalty without it affecting my monthly withdrawal? A. If you don’t repay the loan within the grace period after you retire, it will…
Browsing: 72(t)
Q. I am a 47-year-old air traffic controller. I have completed my 25 years of service and retired Dec. 29. I have been investing in the Thrift Savings Plan my entire career. I want to draw a monthly payment of $1,500. If I do this, is it considered an annuity which I can claim under 72(t)? Or would it be better to buy an annuity equaling the amount I need and let the rest ride until I am 59½? A. The rules for satisfying the 72(t) exception to the early withdrawal penalty are complex and strict, so you should be…
Q. I am retiring from the Army after 22 years of service and I am 45 yrs. old. Can I start withdrawing from the Thrift Savings Plan and avoid the early withdrawal penalty by taking a series of Substantially Equal Periodic Payments? How does that work? My life expectancy is 37.7 more years, according to the Internal Revenue Service, so is that the number of years my funds can be distributed? If so, do I then divide what I saved by 37.7 and again divide by 12 to see what my monthly payments would be? A. You may avoid the…
Q. For about 10 years, I have been taking money out of my IRA using the Rule 72(t) with no issues. I am 58 years old and am planning to continue doing this well past when I turn 59½. Our daughter has some very high college expenses. I understand you can take funds out of an IRA to help pay for eligible college expenses (tuition, fees and books) along with room and board if the student is enrolled at least 12 credit hours. Can I take money out of my IRA for educational purposes while still taking money out using Rule…
Q. I am a firefighter with a county fire department in Florida. As such, I am part of the Florida Retirement System in the special risk class. I started my career early and will be eligible for retirement with full benefits and no FRS penalties by age 48. (This is 25 years of service.) However, because of the Internal Revenue Service penalty for retiring before age 50, I would receive a 10 percent tax penalty in addition to the normal taxes I will pay on my retirement income. I understand that I will receive the penalty of 10 percent. However,…
Q. If I agree to make Substantially Equal Periodic Payments available under Internal Revenue Service code section 72(t) from my TSP, may I do so before I retire and avoid the 10 percent penalty? If it matters, I am a federal law enforcement officer who will have 25 years of service before age 50. A. No, since you’re not allowed to initiate monthly payments before you retire. The 72(t)-compliant distributions will avoid the early withdrawal penalty whenever they are initiated, however.
Q. I made the costly mistake of rolling over my Thrift Savings Plan into a traditional IRA. I had to file a Form 72(t) to take out payments until I reached age 59½. Then I moved to another firm, filed a new 72(t), and now I violated the original 72(t), and take a 10 percent retroactive penalty. A. I’ve written many times about the reasons not to roll your TSP account over to an IRA. This illustrates one of them — that you may be giving up penalty-free access to your funds. I’ve also written many times about the pitfalls…
Q: I am planning on retiring next month when I turn 50. I would like to take monthly installments based on the IRS life expectancy tables to avoid the 10 percent penalty for early withdrawal. Would I still be able to make a withdrawal for my son’s college fees and still avoid the 10 percent penalty? A: You’re planning to use the life expectancy method for calculating withdrawals that will satisfy the exception to the early withdrawal penalty. This exception is allowed under IRS code section 72(t). One of the requirements for meeting this exception is that exactly the correct…
Q: I have recently taken Voluntary Early Retirement from the Postal Service as of Oct. 31, 2009. I want to withdraw money from my Thrift Savings Plan account under the 72(t) section, but am having difficulty filling out the TSP 70 form correctly. I want to do it right the first time so that my case is handled properly and I do not have to encounter any complications later on. Can you guide me on how to fill out this form correctly? I turn 55 on Dec. 2, I am married, and my TSP balance is approximately $400,000. A: The…