Take Control of Your Government TSP in Retirement
During your separation and retirement process, Shared Services will offer you two available options for taking your funds out of the Government TSP:
1. First, you can CASH it out, and pay the total owed taxes on the whole amount in one year. Depending on the sum you have saved, this will put you into a higher tax bracket and further reduce any gains.
2. The second option they offer is to SELL your TSP. They don’t call it that. They call it an annuity, but the reality of the second choice is to sell your accumulated TSP funds in exchange for a monthly income. The federal annuity will pay a lifetime income of approximately $600 each month for every $100,000 in your TSP.
To a retiring employee facing a significant reduction in income, and compared to option 1, the extra dollars from the annuity look pretty attractive and most employees choose Option 2. Without reading the fine print, this can be a very costly decision.
In effect, you lose all rights to the principal:
* There is no growth. Your payments are locked in with only cost of living increases
* There is no death benefit. You may choose a reduced monthly payment and select a survivor option. However, there is no guarantee the total payout will match or exceed your beginning balance.
* There is no inheritance to pass on to family members, and no final expense fund.
* You can never access more than your monthly check amount for any reason, including emergencies.
* The federal annuity essentially pays out interest in the form of monthly payments and keeps all the principle.
The 3rd option available, as is the option with all 401k plans is to roll it over to a qualified tax deferred plan. This can also allow you to take advantage of the benefits listed below but not be caught in the pitfalls of the the TSP option.
Some of the advantages of a Government TSP rollover to a qualified plan include:
* You retain control and ownership of the principle.
* All funds are guaranteed. There is ZERO risk of loss.
* Growth is tied to a market index, but the funds are not invested in the market.
* You maintain access to 10% of your funds each year without penalty.
* Access to additional portions of the principle is available without penalty in the event of nursing home stay or terminal illness.
* 100% of your money can be passed on to your beneficiaries.
A common safe product that is used for Government TSP rollovers is the Fixed Indexed Annuity. One of the primary reasons people use this qualified plan is to ensure their money is NEVER lost in the market, and they use it to supplement Social Security income. Because what goes up does NOT have to come down. This private market product for Government TSP rollovers provides clients with a guaranteed lifetime income benefit and your money can be passed on to your beneficiaries.
Contact us today to go over your retirement plan for your Government TSP and we will show you guaranteed numbers you can work with.