Setting up installment payments from a TSP account is a common way for federal retirees to supplement their retirement income. When your FERS annuity payment and Social Security benefit aren’t enough to cover expenses, these installments can bridge the gap and provide financial security in retirement.
Flexible Options
TSP installment payments offer great flexibility. Not only do you get to choose the date they start, up to six months in advance, but you also determine the amount you would like to receive and the frequency of the payments; monthly, quarterly, or annually. Your remaining TSP balance will continue to grow and your installments will be distributed automatically until you request they stop or your account balance is zero.
Fixed Dollar Payments
If you have a good handle on your budget and know how much money you’ll need to supplement your retirement income, you can opt to select a fixed dollar amount, which must be at least $25. Retirees who have invested in both traditional and Roth TSPs will need to specify whether they want their installment payments to be pro rata or come from strictly one account. Pro rata means the installment payment will be distributed equally from your traditional and Roth TSPs.
Life Expectancy Payments
For those who fear outliving their retirement savings, life expectancy payments provide extra peace of mind. These payments are based on the IRS life expectancy tables and are calculated using your current age and the total balance of your TSP account(s) at the end of the preceding year.
Adjustable Your Options to Fit Your Needs
Regardless of which type of installation payment you choose, you have the freedom to make changes. You can stop installment payments, switch the source from one TSP account to the other, update your direct deposit information, and change your federal tax withholding. Those who opted for fixed dollar payments can adjust the amount and frequency.
Remember, required minimum distributions from traditional TSPs begin when you reach 73. If you don’t need to tap into your TSP, you don’t have to do so until then. Roth TSPs have no required minimum withdrawal rules and can grow tax-free for the remainder of your life.
To get more information on TSP distributions, reach out to an FRC® trained advisor.
