12 Most Important Things about Installment Payments from Your Thrift Savings Plan Sponsored by:Mark Heinrich

The federal government has taken measures to contain the coronavirus. There have been several changes in the payment systems since the coronavirus pandemic clobbered the economy. We have seen many things changing in the Thrift Savings Plan also. To make things simpler, we have come up with 12 essential ideas about the installment payments from the TSP that everyone needs to know: 

1) You can choose your payment intervals from three different options: monthly, quarterly, and annually. Before the TSP Modernization Act came into effect, the installment payments were only monthly. The monthly payments option is the most popular one because retirees get their FERS pensions and Social Security benefits once a month, so taking installment payments periodically from the TSP makes sense.

2) Federal income taxes are withheld from installment payments more than ten years and from life expectancy-based payments in case you are married, filing taxes jointly, and claiming three dependents. 

Under these circumstances, your taxes will be taken seriously, and you might end up paying the tax penalty. In case your installment payment lasts more than ten years, don’t forget to save some money for federal income tax withholding.

3) Federal income taxes are withheld from installment payments that will prevail less than ten years at a 20% level. You can request that they are withheld from the fees, but it cannot be reduced. 

4) The TSP does not refuse to accept state income taxes. If you are living in a state that applies taxes on your retirement income, you need to be prepared to pay estimated payments to your taxing authority.

5) Your spouse needs to sign and give notarized consent for any TSP withdrawal.

6) Installment payments can be made according to the IRS Uniform Life Expectancy Table or in a specific dollar amount. 

7) You can make or stop installment payments at any time, but you cannot switch from a fixed dollar amount paid to payments according to the life expectancy table.

8) Payments that are supposed to last less than ten years qualify for rollover distributions. Payments that may last ten years or more than that cannot be rolled over.

9) If you fail to specify separately, installment payments like all other withdrawals will be taken proportionately between your traditional and Roth balances.

10) You are allowed to change the payment source (Roth or traditional balances) at any point in time.

11) You may or may not choose the type of funds from which your installment payments are taken. All TSP withdrawals will be made proportionally based on your account allocation.

12) Installment payments are the most talked-about options of the TSP withdrawals

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