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There are a lot of things to know about installment payments from your Thrift Savings Plan.  The 12 items below are among the most important.

1)    There are three separate intervals that you can choose for your installment payments; monthly, quarterly and annually.  Prior to the implementation of the TSP Modernization Act, installment payments were only available monthly.  Monthly payments will still be the most popular interval because retirees receive both their FERS pensions and Social Security once a month; taking monthly payments from the TSP as well makes sense.

2)    Federal income taxes are withheld from installment payments that will last more than 10 years and from life expectancy-based payments as if you are married, filing jointly, and claiming three dependents.  This results in taxes being seriously underwithheld and might trigger the estimated tax penalty.  If you are going to take payments that will last for more than ten years, be sure to have extra money withheld for federal income tax withholding.

3)    Federal income taxes are withheld from installment payments that will last less than 10 years at a 20% level.  You can request that more be withheld, but not less.

4)    The TSP does not withhold state income taxes.  If you live in a state that taxes retirement income, be sure to make estimated payments to your state taxing authority.

5)    You need your spouse’s signed, notarized consent for any TSP withdrawal.

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

7)    Payments may be stopped or started at any time.  But you are not allowed to switch from payments of a fixed dollar amount to payments based on the life expectancy table.

8)    Payments expected to last less than ten years are eligible rollover distributions.  Payments that are expected to last ten years or more are periodic payments and may not be rolled over.

9)    Like all other withdrawals, unless you specify differently, installment payments will be taken proportionately between your traditional and Roth balances.

10) You may change the source of your payments (i.e., Roth or traditional balances) at any time.

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

12) Installment payments are the most popular choice for TSP withdrawals.

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