Pros and Cons of indirect rollover. TSP account to index annuity account.

[scagnt83]

I've always done direct rollovers so the tax wasn't an issue.

But I have taken substantial distributions which were not rolled over into any qualifying account.

In those instances I was able to elect not to have anything withheld. The election, of course, came with the warnings about estimated tax and penalties but that was of no concern to me.

If one is doing an indirect rollover one may have the option of nothing withheld. When the deposit to another qualified account is done within the 60 day limit, it should be an offset with no need for estimated tax and no penalties.

Custodians can put whatever requirements they wish.

The IRS does not require it to be withheld.

But some Custodians do.

It varies. Some allow the opt out and some dont. TSPs have a lot more red tape than other qualified accounts.

Also, distributions are different than closing out the account completely. Custodians sometimes treat it differently regarding the withholding requirements.

 

[LostDollar]

Caveat, NOT an agent.

I have not read the following things carefully to be able to make comments about them, but maybe they will be of use to op-and others finding this thread in the future.

I did not know what a TSP is, I went looking and found this site:

https://www.tsp.gov/

In that site I found this page:

Withdrawals in retirement

In that page I found these two articles:

Distributions: https://www.tsp.gov/publications/tspbk25.pdf

Tax rules on payments: https://www.tsp.gov/publications/tspbk26.pdf

 

[JFBAgent]

I work with federal employees hosting educational workshops about their benefits. The TSP has some pros and cons compared to 401ks. Two options how to process a rollover: can be done online or can be done on the phone. When the website was redone a couple years ago it made online requests confusing and participant has to enter information that seems wrong at first. If by phone, participant gives the name of new custodian to TSP to log on record and must call TSP 7days later to instruct the check to be issued.

Some TSP plan participants have access to TSP withdrawals before age 59 1/2 without penalty so it may not make sense to rollover all the funds, depending on their situation. Be careful because if a mistake is made, the TSP will not reconsider a request to undo a transaction and I have heard horror stories from federal employees that I meet with.

Feel free to message me.

 

[scagnt83]

I work with federal employees hosting educational workshops about their benefits. The TSP has some pros and cons compared to 401ks. Two options how to process a rollover: can be done online or can be done on the phone. When the website was redone a couple years ago it made online requests confusing and participant has to enter information that seems wrong at first. If by phone, participant gives the name of new custodian to TSP to log on record and must call TSP 7days later to instruct the check to be issued.

Some TSP plan participants have access to TSP withdrawals before age 59 1/2 without penalty so it may not make sense to rollover all the funds, depending on their situation. Be careful because if a mistake is made, the TSP will not reconsider a request to undo a transaction and I have heard horror stories from federal employees that I meet with.

Feel free to message me.

Keep it where its at? What a novel idea! But how do you get paid?! jk

Great points. They also have EXTREMELY low investment expenses as well. Large Cap fund is around 0.05% if I remember correctly. Cant beat that even on an institutional level.

 

[DHK]

The IRS does not require it to be withheld.

Yes, they do.

https://www.irs.gov/pub/irs-drop/n-20-62.pdf

Page 11:

"If you do not do a direct rollover, the Plan is required to withhold 20% of the payment for federal income taxes (up to the amount of cash and property received other than employer stock)". This means that, in order to roll over the entire payment in a 60-day rollover, you must use other funds to make up for the 20% withheld.

The IRS does not require withholdings when it's IRA to IRA.

 

[titeye]

To actually dumb it down.

If you do a rollover with your TSP, which means cashing it out to your bank account.... then "rolling" it into an IRA.

The TSP provider will withhold 20% for taxes.



If you do a Direct Transfer to an IRA, meaning it never touches your bank account, it goes directly from the TSP custodian to the new IRA custodian.

They dont withhold 20%.

---

Always do a Direct Transfer unless for some odd reason its not possible.

A Direct Transfer may also take place to your bank account, so long as the bank account is titled IRA.

 

[Allen Trent]

Yes, they do.

https://www.irs.gov/pub/irs-drop/n-20-62.pdf

Page 11:



The IRS does not require withholdings when it's IRA to IRA.

Bingo--even better source more specific to TSP is tsp.gov



tspbk26.pdf

 

[Allen Trent]

A Direct Transfer may also take place to your bank account, so long as the bank account is titled IRA.

in this post, it is actually a direct rollover as it is from an employer plan to an IRA

If same plan type to same plan type (IRA to IRA) then it is a transfer. Never understood why the IRS used the various language, but many industry reps mark the wrong boxes on forms & some of the very strict custodians deny the paperwork as NGO for something as minor as marking the box transfer when it should be rollover.

 

[Jccwell]

I work with federal employees hosting educational workshops about their benefits. The TSP has some pros and cons compared to 401ks. Two options how to process a rollover: can be done online or can be done on the phone. When the website was redone a couple years ago it made online requests confusing and participant has to enter information that seems wrong at first. If by phone, participant gives the name of new custodian to TSP to log on record and must call TSP 7days later to instruct the check to be issued.

Some TSP plan participants have access to TSP withdrawals before age 59 1/2 without penalty so it may not make sense to rollover all the funds, depending on their situation. Be careful because if a mistake is made, the TSP will not reconsider a request to undo a transaction and I have heard horror stories from federal employees that I meet with.

Feel free to message me.

I'm a former federal employee, and I've still got my tsp. What are the benefits to rolling it over to a 401k or something else? I'm not intending to change it, but I'm curious what you're talking about.

 

[scagnt83]

A Direct Transfer may also take place to your bank account, so long as the bank account is titled IRA.

That is correct. That is why I said IRA Custodian. The bank is the custodian in that situation.