When you decide to withdraw your account balance, you can have the TSP provide it to you in a single payment, as an annuity, or a series of “substantially equal” payments. These options for TSP withdrawals can be combined. A one-time partial withdrawal is allowed so long as the account holder did not take an “age-based” in-service withdrawal, which is allowed after age 59 1/2..
Note: A change in law enacted in 2017 allowed for multiple partial age-based in-service withdrawals and multiple post-separation withdrawals, while giving the TSP discretion to limit how many are to be allowed. Read the FEDweek newsletter at www.fedweek.com for the latest information on implementation of this change.
Under the lump-sum and fixed dollar amount substantially equal payment options, you can have the TSP transfer all or part of your investments into an individual retirement account (IRA) or other eligible retirement plan of your choosing. IRA transfers are not allowed with annuity payments or with substantially equal monthly payments expected to last longer than 10 years or that are based on life expectancy.
A request for a full withdrawal is made on Form TSP-70 and a request for a partial withdrawal is made on Form TSP-77. In the case of an overpayment, the TSP uses standard government procedures for the recovery of non-tax debt.
Lump-Sum TSP Withdrawals
A lump-sum may be paid directly to you, or part or all of it may be transferred to an IRA or other qualified retirement plan.
Substantially Equal Payments
If you decide on a series of “subsantially equal” payments, you can choose:
- a specific dollar amount you want to receive each month;
- a series of monthly payments computed by the TSP based on an IRS life expectancy table.
If the amount elected does not satisfy the IRS minimum withdrawal requirements the TSP will increase the amount so that the requirements are satisfied after April 1 of the year after you reach age 701⁄2. All or part of the payments may be transferred into an IRA or other qualified retirement account, subject to the minimum withdrawal requirements. See IRS Publication 590 for details, including how to figure your minimum required distribution.
If you choose these payments, you may continue to manage your investments as you wish, making whatever adjustments among the funds you want to. However, be aware that losses due to investments in any fund other than the G fund could reduce the number of payments you receive.
After your payments have begun, you can change:
- to a final single payment;
- the proportion transferred to an IRA or other eligible retirement plan; or
- the IRA or plan to which your payments are sent.
If you elect the fixed dollar amount payment, you can change the dollar amount once a year. Those electing life expectancy based payments have a one-time opportunity lifetime to change to fixed dollar amount payments.
Note: A change in law enacted in 2017 allowed for choosing these payments to be made annually or quarterly in addition to monthly, for greater flexibility in changing their amounts, and for taking the balance as an annuity after stopping such payments. Read the FEDweek newsletter at www.fedweek.com for the latest information on implementation of these changes.
Here are the annuity choices that the TSP makes available to you:
- a single life annuity;
- a joint life annuity with your spouse; or
- a joint life annuity with someone other than your spouse.
For someone other than your current spouse to be eligible for a joint life annuity, that person must have an “insurable interest” in you. The TSP assumes that the following kinds of people would meet that requirement:
- your former spouse;
- blood relatives or adopted relatives who are closer than first cousins; and
- a person who is living with you in a relationship that would constitute a common-law marriage in those jurisdictions that recognize common-law marriages.
If you want to provide for someone other than a person listed above, you must submit an affidavit with your annuity request from at least one other person (other than the joint annuitant) who has personal knowledge that the joint annuitant you have chosen has an insurable interest in you. The certifier must know the relationship between you and must state why he or she believes that the named annuitant might reasonably expect to benefit financially from your continued life.
If you elect a joint life annuity, the monthly payments will continue to you or to your joint annuitant after either one of you dies. The monthly payments can be in the same amount or reduced by half, depending on whether you choose to provide 100 percent or 50 percent survivor protection. Note that unlike the survivor benefits under the basic federal retirement program, if a 50 percent survivor benefit is elected in a TSP annuity, the payments are reduced to 50 percent when either spouse dies, not just when the primary beneficiary dies.
Payment levels — Once you have chosen to receive an annuity, you also have to decide whether you want to receive level payments or ones that increase. Choosing increasing payments results in a reduction to your basic TSP annuity.
Level payments remain the same from year to year. In effect, you receive the same monthly payment for as long as you live. Increasing payments move upward based on the consumer price index (CPI). The adjustment is made each year on the anniversary date of your first annuity payment.
While increasing payments can be combined with either a single or joint life annuity with your spouse, they cannot be combined when the “joint annuitant” is someone other than your spouse.
Note: Increases cannot exceed 3 percent per year. On the other hand, they cannot decrease, regardless of what the CPI does.
Special annuity features — There are two other annuity features, each of which also results in a reduction to the basic TSP annuity:
- the cash refund feature
- the 10-year certain feature
Under the cash refund feature, if you (and your joint annuitant) die before the full amount in your account balance used to buy your annuity has been expended, whatever remains will be paid to your beneficiary in a lump-sum.
Under the 10-year certain feature, if you die before receiving annuity payments for a 10-year period, those payments will continue to your beneficiary for however many months are left. This feature can be combined with a single (but not a joint) life annuity and with either level or increasing payments.
If you decide to postpone your decision, you can leave your money in the TSP but you must make a withdrawal election by March 1 of the year after you reach age 70 1⁄2 and begin receiving certain minimum distributions.