Question 1
If I retire at age 62, and I do a rollover into a traditional IRA, do I pay taxes on the rollover amount? Also, if I am over 59.5 yrs old (I plan to retire at 62) can I take a lump sum out of my TSP? If so, I don’t have to pay a penalty but I pay taxes, correct?
Answer 1
Yes, you are right that if you do a direct rollover from the traditional TSP to a traditional IRA then no taxes or penalties are due.
This is because the traditional TSP and a traditional IRA are both pre-tax accounts.
For your second question, yes you can take a lump sum out of your TSP as long as you are over 59 and ½ and you won’t pay a penalty. This is true even if you are still working.
If you are over age 59 and ½ and are still working, taking money from your TSP is called an age-based in-service withdrawal.
But like you suggested, anytime you take money out of your traditional TSP (or traditional IRA) you will have to pay taxes even if you don’t pay a penalty.
Question 2
I’ve noticed several websites stating the annual limits on how much ROTH contributions can be. I’m confused on how ROTH TSP contributions differ from this? I’ve been advised via the TSP helpline that I can put up to 26k into either the traditional TSP or the Roth TSP or some mixture of both. How is this different from the $7,000 limit I read elsewhere? I am nervous to do this since there are penalties if I “over” contribute.
Answer 2
This is a common confusion.
What we have to get straight first is the fact that the rules are different for a Roth IRA and the Roth TSP.
The information you got from the TSP helpline is 100% true. If you are over 50 then you can contribute up to 26k in 2021 into either the traditional or Roth TSP or some combination of the two. The limit is $19,500 if you are under 50.
And the good news is that the TSP won’t allow you to over contribute into the TSP.
However, the rules for a Roth IRA are different. The annual contribution limit for a Roth IRA is $7,000 if you are over 50 and $6,000 if you are under 50.
In a Roth IRA is where you have to worry about over contributing because there is no one stopping you from doing so.
One of the most important things to remember is that the contribution limits for the Roth TSP and a Roth IRA are unique and separate.
Question 3
Hi Dallen, the impact your YouTube channel has made on my planning for FERS retirement is incredible! I had resigned myself to working until 67 with very little confidence that I would have enough money to retire. Your always upbeat encouragement and excellent advice have me looking at hanging up the briefcase at 63. To keep me moving in the right direction, I watch (and rewatch) at least one a day and still pick-up a nugget or 2 each time. As my wife says “you need your Daily Dallen”. My question is about Social Security: my wife worked for 10 years and quit to have our sons, and didn’t return to work. Our plan is for her to begin SS when she turns 62 ($647 per month) and I would begin SS at 67. Is it possible that when I take my SS at 67 that she could convert to SS Spousal benefits? It would more than double her monthly SS payment. Again, thank you for the great work you do. PLEASE keep it going!
Answer 3
It is great to hear that the channel is helpful!
For your question, the short answer is that when you start your benefits, the Social Security Administration will automatically check to see if your spouse would get higher benefits based on your work record instead of her own.
If her spousal benefit is higher than her own then her payment will be automatically adjusted accordingly.
