TSP Withdrawals and using IRAs correctly in TSP Rollovers

TSP, IRA Rollovers and other Options

There are three common types of IRAs – Traditional, Roth and Rollover.  Finding the right IRA for you requires being educated about what each one offers.  All IRAs are designed to help you for retirement but each has its unique features.

 An IRA is an Individual Retirement Account (IRA) that provides either a tax-free or tax- deferred way for you to save for retirement.  IRAs allow you to invest in just about any investment and these investments can grow tax deferred.  Each IRA has unique eligibility requirements and benefits.

IRAs rely primarily on the power of long term, tax-deferred compounding to provide your retirement savings the opportunity to grow faster than in an account that is taxable.  When you earn interest, receive dividends or sell an investment for gain, you are not obligated to pay taxes that year on the earnings.  All taxes are deferred until you withdraw those earnings in retirement.  Your money continues working for you while building your nest egg for  year after year.

Roth IRA

Unique Benefits, Eligibility Requirements

  1. Any earnings are tax-free if withdrawn after age 59.5 and the account has been open five years or more
  2. Contributions (not earnings) can be withdrawn tax and penalty free at any time
  3. Contributions are not tax-deductible
  4. There is a single 5 year holding period when determining whether earnings can be withdrawn federally tax-free.  The period begins January 1 of the first contribution to any Roth IRA account.
  5. Regular contributions are allowed up to age 50
  6. Catch-up contributions are allowed age 50 +
  7. Up to age 50 – 2009 contribution limit $5,000
  8. Over age 50 – 2009 contribution limit $6,000
  9. Modified adjusted gross income and tax filing status determine how much you can contribute
  10. For 2009, single tax-filers with $120,000 or less in annual income and joint-tax filers with $176,000 or less are eligible.  For 2010, single tax-filers with $120,000 or less in annual income and joint tax-filers with $177,000 or less are eligible.

Traditional IRA

Unique Benefits, Eligibility Requirements

  1. Any earnings grow tax-deferred until withdrawn after 59.5 at which time they are taxed at your current rate
  2. Contributions and earnings can be withdrawn penalty free after age 59.5
  3. Contributions may be tax-deductible
  4. Allows investment earnings the opportunity to grow tax deferred until withdrawn
  5. Your age and tax filing status (joint or single) determine how much you can contribute annually
  6. Contributions may be tax-deferred depending on your tax filing status, modified adjusted gross income, and participation in employer-sponsored plans.
  7. Maybe opened by anyone with taxable compensation or a spouse (if you file jointly) with earned income and who was not 70.5 years old by the end of the current year
  8. Up to age 50 2009 contribution limit $5,000
  9. Age 50 – 70.5 contribution limit $6,000
  10. Over age 70.5 2009 contribution limit (not allowed)

Rollover IRAs (TSP 70 and TSP Withdrawal)

Rollover IRAs allow you to consolidate your TSP, possible 401(k) and 403(b) accounts along with any other employer-sponsored retirement accounts into one account maintaining the assets’ tax deferred status.  Using form TSP 70, a TSP withdrawal can be a good decision because of the limited TSP investment options that exist and the much larger array of options available through Rollover IRAs.

There are a few outside companies that specialize in helping Federal employees with their TSP funds after retirement or once an employee has reached 59 1/2.  Two of those companies that you may want to consider can be found at TSP-70.com and TSP-withdrawal.com.

P. S.  Always Remember to Share What You Know.

RELATED TSP ARTICLES

Thrift Savings Plan (TSP) Withdrawal Options

For Postal Employees – LiteBlue and the TSP

Federal and Postal Employees – Choosing a Financial Professional

The Thrift Savings Plan (TSP)

Is All ‘Your’ TSP Money Actually Yours?

Federal Retirement Benefit Analysis

How To Best Fund Your TSP

 

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