Forgot Password. The Thrift Savings Plan for federal employees is a defined contribution plan, which means your account is funded through elective salary deferrals. Some federal agencies also offer an employer match. Once you're ready to leave federal service, you can withdraw your retirement money and close your account. Keep in mind that TSP withdrawals are generally subject to federal taxes. If you want to make a full withdrawal of your TSP money, there are three basic options for receiving the cash.
You can request a lump-sum payment, a lifetime annuity, or a series of monthly payments based on a set dollar amount or your life expectancy. The annuity is a monthly benefit paid to you for life. You can combine two or more of these options, but you'll still be required to meet the minimum balance for the lifetime annuity.
It's really tempting to cash out your TSP account to pay for them. But that is almost always the worst thing you can do. When you make any investment, the investment company is going to take some of your money as a service fee; nobody works for free.
The TSP currently charges a service fee of 0. Even index funds, which some investors swear are the best investments, normally have service fees at least twice as high as the TSP. Most employer-sponsored retirement savings plans are at least three to four times more expensive than the TSP is. Another reason to keep the TSP is the tax advantage. Since the TSP is a tax-deferred or tax-qualified retirement program, you are basically making a deal with the IRS saying you won't use this money until you are close to retiring.
For its part, the IRS says it won't tax you on a portion of that money. This is one of the big selling points of any retirement savings plan. But if you take the money out before you retire, the IRS is going to come looking for its tax money, and they always get it.
If you would like to make a withdrawal from your TSP, but you do not want to pay the applicable taxes, you have the option to repay the funds as if they were a loan. The repayment plan is not for everyone. If you do not repay, there could be a substantial penalty. But she encourages participants to do their research and ask questions if they do not fully understand the options and their implications.
If connected to voicemail, please leave a detailed message indicating financial planning assistance is needed. Skip to main content Press Enter. Home : News : News. When all is said and done, you could end up with a little more than half of your original TSP savings!
In addition, you will owe tax annually on any future earnings your lump sum generates. The repercussions of cashing out of your TSP could be enormous. Even if you have a shorter time horizon, you will forgo significant savings opportunities by cashing out your TSP.
Keep in mind that even if you really need the money, you may be better off borrowing from your TSP account. You may be able to borrow at a lower rate from your account than you could from a bank or other lender, especially if you have a low credit score. You must be in pay status to obtain a loan, because your regular monthly loan payments are made through payroll deductions. When you leave military service, carefully examine the short- and long-term consequences before cashing out of your TSP account.
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