Ask Terry Questions withdraw of 120.000 from fed thrift saving plan for down payment on house.

withdraw of 120.000 from fed thrift saving plan for down payment on house.

By Terry Savage on July 22, 2016 | Financial Planning / Retirement

Terry, i’m a fed employee enrolled in the thrift saving plan. I will be 59 1/2 years old in November and plan to with draw 120.000 dollars from my tsp to make a down payment on a house and to pay off a parent student loan and a credit card bill. I plan to continue to work until 63 years old ( if not longer 65) and continue to contribute to my TSP all during my continual employment for at least the next three years. Other than the tax that I will have to pay at the time of the withdrawal, what are other factors may affect me. What is the tax on a 120.000 withdraw from my tps.

Terry Says: I’ll answer your question, but let me say that this doesn’t sound like a good plan to me. The amount you withdraw from your plan is considered ordinary income, so it will be added to your other income in the same year and taxed at your marginal rate.  It is clear that this will throw you into a higher tax bracket.  But,even worse, although you won’t have to pay a penalty since you will be 59-1/2, you will lose all future tax-deferred growth of this money!  And that can add up to a lot over the next 11 years until the point at which you will be required to start withdrawing.

And, it looks like you are making a down payment, and thus will have a mortgage.  How can you plan to retire in four years and still be paying on a mortgage?  Are you sure you want to/need to make a home purchase that will burden you with mortgage payments and property taxes and insurance in retirement??  Are you planning to sell another house, and pay off the mortgage when you retire?

Obviously, I don’t have all the facts here. But a good compromise might be to withdraw just enough to pay off your credit card bills and the student loan, since they likely carry a high rate of interest.  And also, to delay retirement as long as possible so that you don’t run out of money before you run out of time!

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