Student Loans

What Happens To Student Loans If You Withdraw – TSP Withdrawal Rules You Need to Know

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What Happens To Student Loans If You Withdraw – Highest Rated?

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Dallen Haws at Haws Financial Planning
Sierra Vista, AZ

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Since the TSP Modernization Act went into force in September of last year, there are a number of new withdrawal options from your TSP. Before this, the TSP was miles behind comparable retirement accounts on the private side in terms of flexibility. While the act isn’t perfect, it is one of the first steps needed to get the TSP up to speed.
Withdrawal Options
There are basically three different options when it comes to pulling money out of your TSP. You can basically use them in whatever combination you’d like.
TSP Installment Payments- This is where you tell the TSP how much to pay you on a monthly, quarterly, or annual basis. You can also ask them to pay you a monthly amount based on your life expectancy. Although there is no guarantee, the idea is that it will spread out your TSP balance over your entire retirement. You would be able to change the amount anytime or even stop payments if desired.
Single Withdrawals- With this option you can request a one-time distribution from your TSP. However, there is a minimum of $1,000 and you can only do this type of withdrawal every 30 days. You could even withdraw your entire account balance if you want.
Annuity- With this option you would give your TSP balance or at least a portion of it, to an annuity provider (Metlife has the current contract to provide these to federal retirees if desired). They would guarantee you a fixed income for a certain amount of time. You can also tell Metlife that you want a payment for the rest of your life and the amount of your payment will be set based on your life expectancy. The major downside of this option is the limited flexibility and reversibility. Once you make this decision, it is very difficult to get access to your money other than what they pay you every month. This option offers incredible security but no flexibility.
Traditional and Roth
One perk that federal employees now enjoy because of the TSP Modernization Act is that they have more control over where their withdrawals come from. For example, before you had to take money out of your traditional TSP and Roth TSP proportionally. Now, you can choose which one you’d like to take your funds out of based on your tax situation in the current year. For example, in a year where you might have higher taxable income, it might make sense to draw only from the Roth side in efforts to stop yourself from bumping up to a higher tax bracket.
RMD’s
One thing that is very important to remember is that at age 72, required minimum distributions (RMD’s) are required for both the Roth and the traditional TSP. This basically means that you have to take out a certain percentage of your account balance every year after age 72. Because the TSP has many tax advantages, the government wants to make sure that you don’t avoid taxes completely by requiring that you start taking money out.
The TSP’s Remaining Pitfall
While the TSP is not perfect, it does a lot of things really well and serves as a great wealth accumulation tool throughout someone’s career. One of the major downsides however is the fact that you cannot decide which funds you withdraw money out of. Whenever you make a withdrawal, the money comes out proportionally based on what funds you are invested in. For example, if you had half your money in the G Fund and the other half in the I fund, a $1,000 withdrawal would take $500 from each fund. This may not be a big deal in some years but in years when the stock market is really low, it often makes much more financial sense to draw from the G fund and let stock market funds have more time to recover.
Conclusion
Investing your money in the TSP during your career is incredibly important, but knowing how to best take it out in retirement can be just as important. The TSP Modernization Act has made this much easier for federal employees. Now it is just up to federal employees themselves to take advantage of the new options.

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18 Comments
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18 Comments

  1. Diane Czerniak
    July 26, 2021 at 7:17 am

    Wouldike to know how I could pay less income tax on tsp all mine in tax deferred

  2. David Gonzalez
    July 26, 2021 at 7:17 am

    Great video. just one question. I am a federal law enforcement retiree. I can only make 18,200 annual. If I take money out of my TSP does that money count towards the 18,200?

  3. Jerwin Tabor
    July 26, 2021 at 7:17 am

    Hello…just asking for a quick clarification to make sure I heard it correctly. Due to the TSP Modernization Act, we can "Dictate" from where we can have the TSP funds distributed out, whether it is from the traditional TSP or the ROTH TSP, is that correct? And if so, later in the video you did mention that We "Cannot" choose from which "FUNDS" the monthly payment could be paid from (I think I heard that correct)….. And so If that is the case….and "I" myself only have my TSP going into the S Fund (in my career, started it in Traditional TSP and halfway switched to ROTH TSP) and so I am invested in both… Since it is only…"ONE FUND"…can I choose from Which I can have my monthly payments taken from, even though 1/2 is in Traditional and the other 1/2 in ROTH ? Thank you for your help.. Keep up the very informative videos.

    JT

  4. Jerry McGhee
    July 26, 2021 at 7:17 am

    Cant you take out money from your TSP and then immediately reallocate your remaining balances?? I can move money between various funds at least monthly now…

  5. Chau Thi
    July 26, 2021 at 7:17 am

    When I retired Can I keeping my TSP without withdrawals money out?

  6. Lo SkEe
    July 26, 2021 at 7:17 am

    Can I take all the money out of my tsp?

  7. Wayne Miles
    July 26, 2021 at 7:17 am

    Can I take out one payment per year if I am 60 years old? Do I have to pay taxes on my withdraw? I want to withdraw once per year at a different amount each year.

  8. Alan
    July 26, 2021 at 7:17 am

    So this is in regards to post retirement after 59.5 yrs old? Is there a way I would be able to liquidate and withdrawal my account while active duty? I plan on getting out of the service next year, but wanted to withdrawal my whole roth tsp NOW, for other investments. I've only been able to see the 59.5 rule, hardship, and upon getting out of the service.

  9. TheTrevelyansway
    July 26, 2021 at 7:17 am

    I tried going to your courses but your link says page not found

  10. Derek Simmons
    July 26, 2021 at 7:17 am

    I have civilian and military TSP accounts. Can I select which account I want to make withdrawals from? My military account is mostly tax free combat contributions, can I request only withdrawal of the tax free contributions and not the taxable growth?

  11. Rick Martin
    July 26, 2021 at 7:17 am

    helpful thanks

  12. Ephraim G
    July 26, 2021 at 7:17 am

    I have a traditional tsp and I'm 63 yrs old, what will happen if I close my account? What taxes should I pay?

  13. scarfinger68
    July 26, 2021 at 7:17 am

    You answered one of my questions, pro-rata within the fund you select your withdrawal. I am trying to decide if i should open a roth IRA outside the TSP. Thanks for the video

  14. Al Jordan
    July 26, 2021 at 7:17 am

    these videos are a fantastic resource. thank you for sharing your expertise, and for doing it so well.

  15. Sun of Sotep
    July 26, 2021 at 7:17 am

    Informative, thanks. I used to be under the impression that I could take my money out in a lump sum. How silly of me.

  16. Mac 9th
    July 26, 2021 at 7:17 am

    Shower Thought…What if I take an in-service withdrawal at or after 59.5 years old, but take the withdrawal while residing and employed in a tax-free zone?

    Example; I’m working from age 58-60 on Kwajalein, Marshall Islands, with no Fed tax on my earnings, and only a 5% Marshallese tax. Would I simply pay 5% to the Marshall Islands as I would with all of my regular income, or is the TSP withdrawal still subject to Fed Tax as if I were in a taxable zone such as Germany, or stateside?

  17. Baldemar Z
    July 26, 2021 at 7:17 am

    I retire next year with 25 yrs FERS, will be 54 YOA, I plan on leaving my money in the TSP traditional, I like the first option, "Installment payments…" Could you please tell me how much I will be paying in taxes? Is it 10, 20, or what percent? Will I be penalized for early withdrawals? Will the taxes decrease as I get older?

  18. teeduck
    July 26, 2021 at 7:17 am

    To me it's a no brainier to just move to an IRA, sector fund fees are still low, even with private companies. Plus you can buy individual stocks if you want.