The curse of turning 70 …
By Mike Causey
June 25, 2015
For many people, the only thing worse than turning age 70 is the possibility that they won't make it to 70.
Being 70 has its perks. Among them:
- You don't have to take your shoes off at airport security
- If they revive the draft, you get to stay home. And …
Actually, that's about it!
The downsides of hitting your seventh decade are too long to list here, but an important one is that when you turn 70 you MUST (if retired) start withdrawing money from your TSP. And pay taxes on it. It's called the RMD or required minimum distribution.
To help guide TSP account holders, retirement benefits expert Tammy Flanagan checked in with Kim Weaver, director of External Affairs for the Federal Retirement Thrift Investment Board. Here's Tammy's summary:
- " Here's the basic drift of the notice that is mailed to separated TSP participants who are facing two important deadlines if they are over 70 1/2-years-old:
- "There is a perfect storm approaching that is caused by the fact that there is a TSP deadline and an IRS deadline approaching for starting your TSP withdrawal. Both of these deadlines must be met no later than April 1 of the year after you have turned 70 1/2 and are separated from service. Separated can mean retired under CSRS or FERS or it can mean that you've resigned without entitlement to CSRS or FERS retirement benefits. As long as you have a balance of $200 or more, you may leave your money in the TSP after you leave federal service, regardless of whether you are qualified for a CSRS or FERS retirement benefit.
- "The TSP warning also states that you should begin making plans for how you will withdraw some or all of the savings in your TSP account by making your withdrawal request no later than the end of February of the year following your separation if you are over 70 1/2-years-old at the time you leave federal service. According to the TSP, making your request by the end of February allows time to return improperly completed forms for correction and ensures processing of the forms by April 1. April 1 is when you must receive your first payment if you are over 70 1/2-years-old and separated from federal service. If you decide to continue working for the government , these deadlines do not apply to you until April 1 of the year after you meet both the age and separation requirements.
- "In addition to this notice that is mailed to separated TSP participants, there is also information about these deadlines in the TSP Publication, "Withdrawing Your TSP Account After Leaving Federal Service." According to this publication, the TSP will notify you before your required withdrawal date and mail you important tax information about your TSP withdrawal, as well as information about the IRS minimum distribution requirements. In order to receive these important mailings, you must keep the TSP informed of your mailing address. If you do not begin to withdraw your account by the TSP withdrawal deadline, your IRS required minimum distribution for the prior year will be sent to your last address of record.
- "If you are receiving monthly payments from your TSP at the time you reach the required minimum distribution (RMD) age, you will be subject to the IRS minimum distribution requirement, and your monthly payments will be used to satisfy that requirement. If the total amount of your monthly payments does not satisfy the requirement, the TSP will issue a supplemental payment for the remaining amount in December. If you have both traditional and Roth TSP account balance, keep in mind that your entire TSP account is subject to the required minimum distributions. When you have traditional (non-Roth) and Roth balances in your account, any withdrawals will be paid pro rata (i.e., proportionally) from each balance. Also be aware that if you receive a payment from an account that has both taxable and tax-exempt contributions, your distribution will be paid proportionally from taxable and nontaxable amounts.
- "For more information about required minimum distribution requirements and payments from your TSP account, here is an eight-page pamphlet to provide a good overview of what you need to know. According to this pamphlet, if you do not make a withdrawal election by the required deadline because the TSP is not aware of your whereabouts, your account balance will be forfeited to the TSP. You can reclaim your account, but your account balance will not accumulate earnings after it is forfeited. In order to reclaim your account, you must make a full withdrawal election using Form TSP-70-A, Late Request for Full Withdrawal. Additionally, if we do not receive your properly completed withdrawal election by Feb. 14, we will also issue you a required minimum distribution on March 1."
To avoid these adverse situations described above, Flanagan makes the following recommendations:
- "Be sure to keep the TSP aware of any address (or name) changes after you separate from federal service. If you have left federal service and need to update your mailing address, use this form.
- "Watch for mailings from the TSP after you separate, these are generally not advertising, they generally contain important and sometimes time sensitive information!
- "When you decide to make a partial or a full distribution from your TSP account, use the online TSP "Wizard" to facilitate your request instead of the TSP Forms. The online wizard is available through your online account access.
- "Be sure to keep your account numbers (or user ID) and Web password in a safe, but accessible place for use when you need to access your online TSP account. https://www.tsp.gov/sitehelp/accountaccess/accountAccess.shtml
, if you have forgotten your account number, you must ask the TSP to send it to you. For security reasons, you cannot receive this number via email or over the telephone. If you have forgotten your user ID, but still have access to your account number, use the account number to access your account and then create another user ID. You can use your account number and user ID interchangeably to log into your account. If you have forgotten your TSP-issued password or a password that you created, you may either ask the TSP to mail you another one or you may call 1-877-968-3778, choose option 3 to speak to a Participant Service Representative, and request that your password be reset. For security reasons, you cannot receive your password via email."
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Neither the TSP Strategy group, nor individual members, are licensed or authorized to provide investment advice. Any statements made herein merely reflect the personal opinions of the individual group member. Please make your own investment decisions based upon your personal circumstances.
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