Critical Aspects of TSP Installments

There’s a lot to understand about Thrift Savings Plan installment payments. The 12 elements listed below are among the most crucial.
1)   You may make your installment payments at three different intervals: monthly, quarterly, and yearly. Before the passage of the TSP Modernization Act, installment payments were only accessible monthly. Monthly payments will continue to be the most popular interval since retirees get both their FERS pensions and Social Security payments once a month; receiving monthly payments from the TSP makes sense as well.
2)   Federal income taxes are deducted on installment payments that’ll last more than ten years and also on life expectancy-based payments as if you’re married, filing jointly, and claiming three dependents. As a result, taxes are significantly under-withheld, potentially triggering the estimated tax penalty. If you plan to take payments that will last more than ten years, make sure to have additional money withheld for federal income tax withholding.
3)   Federal income taxes of 20% are withheld from installment payments that’ll less than ten years. You can ask for more to be withheld, but not less.
4)   The TSP doesn’t withhold state income taxes. If you reside in a state where retirement income is taxed, make sure to make estimated payments to your state’s taxation authorities.
5)   Any TSP withdrawal requires the written and notarized approval of your spouse.
6)   Installment payments can be made in a specific amount or as per the IRS Uniform Life Expectancy Table.
7)   Payments can be paused or resumed at any time. However, you’re not permitted to switch from fixed-dollar payments to payments based on the life expectancy chart.
8)   Payments estimated to last less than ten years are eligible rollover distributions. Payments estimated to last ten years or longer are considered periodic payments and cannot be rolled over.
9)   Unless you indicate otherwise, installment payments will be split proportionally between your traditional and Roth balances, like all other withdrawals.
10) You can change your payments’ source (i.e., Roth or conventional balances) at any time.
11) You cannot choose the funds from which your payments are withdrawn. All TSP withdrawals, regardless of type, must be made in proportion to your account allocation.
12) Installment payments are the most common method of TSP withdrawal.

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