Author Topic: federal employees early retirement options  (Read 4819 times)

sol

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federal employees early retirement options
« on: January 03, 2013, 05:09:34 PM »
I'm hoping Nords or some of the other feds here can help me clarify my options for early withdrawals from the TSP.  We've got the bulk of our assets in our TSP accounts and getting them back out after separation but before 59.5 is looking challenging.  If I can figure this out, I'd like to continue maximizing our TSP contributions for the tax deductions.

1.  The MMM-approved 5 year Roth IRA pipeline doesn't seem to work for TSP accounts, because you can only withdraw two times.  The first as a partial withdrawal, which can be rolled over, and then a second time as a full withdrawal which must liquidate the account.  If we each have 10 years of income in our TSP accounts, taxes on 5x salary is going to be a bitch.  Can I roll TSP funds into a traditional IRA, and then do annual rollovers from the traditional IRA to my Roth IRA to smooth out the tax burdern?

2.  Alternately, we can allocate part of that second full withdrawal to Substantially Equal Periodic Payments, or buy annuities.  With interest rates so low, the payouts don't look very good so I'm not sure the SEPPs are even worth it, vs just saving the money in taxable accounts instead.  Do early retiree feds usually take SEPPs?

3.  The annuity options are overwhelming, with multiple riders on single life or two kinds of joint life annuities.  How do those options play out for couples where both partners are feds?

4.  The new health care law has substantially changed health insurance options, which I'm hoping will make this easier because it looks to me like retiring early from federal service means losing all of your health care benefits.  If TSP withdrawals continue to be exempt from the 10% early withdrawal penalty if you have health care costs that exceed 7.5% of your AGI, and you're buying private health insurance with an AGI that is near zero, does that mean I can draw from the TSP penalty free?  Because that would be a piece of awesome.



simonsez

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Re: federal employees early retirement options
« Reply #1 on: January 08, 2014, 02:03:20 PM »
I assume you are FERS.

How many years of service do you plan on having when you separate from federal service?  If you hit 30 years in your 50's, the FERS Supplement could bridge the gap until you are 62 (or 59.5, whatever).  Note that this will correspond with a reduction in your S.S. later on.  More details are below.

http://www.opm.gov/retirement-services/publications-forms/csrsfers-handbook/c051.pdf

If you plan on separating well before 30 years of service or your mid-50's, then I preemptively congratulate you but don't have any federal advice and join you in the boat to see what anyone else has to say on this topic.

1.  I'm sure you could do it that way.  I currently put monies in both TSP and Roth TSP.  I plan on rolling over all my Roth TSP monies into a seasoned Roth IRA when I separate and then doing whatever I want with it (no MRD's).  I wanted them separate later on so withdrawals wouldn't be forced to be proportional to the ratio of TSP to Roth TSP (i.e. I wanted control over what was coming out tax-wise).

2.  I work alongside some CSRS'ers that are retiring soon (mid 50's, early-ish for where I work but not on this forum!) have a little bit in TSP and they are not buying annuities with it.  They are fairly conservative when it comes to investing as well.  They both think they can do better leaving it in TSP or elsewhere rather than buying an annuity.  2.875% for Jan '14.

https://www.tsp.gov/whatsnew/rates/annuityRateIndex.shtml

3,4. Not even gonna try.

Sorry I couldn't be more helpful.  Good luck!

sol

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Re: federal employees early retirement options
« Reply #2 on: January 08, 2014, 04:29:05 PM »
Wow, zombie thread.  Over a year old...

In the past year I've decided that yes, TSP to traditional IRA rollover is going to be the way to go.

We will both retire long before our 50s.  I expect 72(t) rates will continue to improve for the next year or so, but since setting up SEPPs on a portion of your 401k plan puts that portion off limits to rollovers, I don't see any advantage to utilizing them before 59.5 as long as the Roth pipeline is still viable.

The ACA has basically solved our health insurance problems, it seems.  We currently pay about $3k for health insurance for our family, and our employer kicks in another $14k/year.  After retirement, our income should put our contribution to health insurance much closer to the former number than the latter.

As for how to take the federal basic benefit annuity, I've punted that one for now.  No need to make that decision just yet.

adam

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Re: federal employees early retirement options
« Reply #3 on: January 09, 2014, 08:56:28 AM »
I'm not going to need to know the answers to those questions any time soon, but I will eventually.

I'll have 25 years at 49, so 30 years at 54.  Would the FERS supplement work for a 49 year old 'early' retiree?

I guess either way I need to read into that since even at 30 years I'd be in my lower-mid 50s.

enigmaT120

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Re: federal employees early retirement options
« Reply #4 on: January 09, 2014, 04:07:20 PM »
I'll have 25 years at 49, so 30 years at 54.  Would the FERS supplement work for a 49 year old 'early' retiree?

Nope.  Even if your agency offers a VERA, you won't be able to get the supplement until your minimum retirement age.  That's assuming the supplement still exists by the time you get that old.  I guess they are talking about reducing or eleminating it:

http://www.fedsmith.com/

has lots of articles regarding that and early retirement and other stuff.