Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make smarter financial decisions. Reyna Retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:40] Speaker B: Isn't it interesting when you went to school, you have these teachers or professors that just made such an imprint on you. When I was in college, I was an English major. You may not believe it because some of my grammatical errors that I make very strongly, but I had a professor, English lit and Dr. Monberger, he's since passed away, but he was incredible and he would always transition.
In our reading he would say post romantic, therefore modern. Post romantic, therefore modern. If it was post romantic, it's modern. Anything after the romantic era is modern. Post romantic, therefore modern. And what we're talking about today is the TSB Modernization act and what it did for you and what it means and what it doesn't mean. And if it is post, if it is post Modernization act, therefore it is modern. So things are happening and back in the day, pre modernization. First of all, what you need to know how this change was so great and this is not brand new. This Modernization act is quite a while ago that it was enacted. But I think sometimes it's interesting to know how the change happened and what good it did.
So it used to be you can only grab one partial withdrawal essentially for your whole life. TSB definitely while you were working, because after separation you could take some installments, but then they had rules on them and restrictions on how you could change them.
You could only draw out of the Roth if you were also taking from traditional, which would force a taxation, all kinds of things while you were working. You had like one opportunity before you were after 59 and a half to take a withdrawal or even do a rollover. And that was all she wrote. But the Modernization act changed that. I've got a list of that stuff. Let's take a look and see and just go over it so you can kind of see what changed for you know, this went into effect September 15, 2019. Raina, this was over five years ago. Yeah, but a lot of people still don't understand what it means because you've been working for so long Five years goes by in a heartbeat and you don't maybe realize how it was and how it has changed. I still have people asking me about the limitations, patience, that this act changed. So let's verify what it didn't didn't do. So first of all, I went to into effect on my dad's birthday back in 2019. So I'll never forget the day of this act.
After you retire, that is separation, you can take multiple partial withdrawals. So that means, okay, I have 500,000, I'm going to grab 10,000 in March, 5,000 in June, and then another 2,000 in December. You can take multiple lump sum withdrawals after 59 and a half while you're working. You could use to only one time, remember now you can grab it while you're working up to four times per year.
But fast forward or remember back, just go back a little bit. After separation you can take multiple, that is as many as you want to. So this is a good change. I have people still ask me they're already retired. Oh, I can only take four, right? No, you can take multiple more than four after you've retired, but while you're in service and over 59 and a half, that's when you can grab only four per year.
Now, used to be you could only take Roth if you took traditional. Now you can actually choose the source you take a withdrawal from. This is massive because used to be it was pro rata, as in a same percentage.
So let so remember you if you have a Roth, if you're contributing into the tsp, Roth, remember you, your Roth is almost always, I mean it's 100% less in percentage than your traditional because most people were already contributing to traditional. The match goes into the traditional side and the Roth is almost always a lower balance than the traditional side of tsp. So back in the day, let's pretend I had a guy, I pretend this is what happened. He had $200,000 traditional and he had $10,000 Roth. And he says, hey tsp, I want to empty out my Roth. Well, that will be 100% of the Roth.
So automatically, because of those rules before the modernization act, they would then immediately distribute also 100% of his traditional side, which was then taxable all at one time to Hondo.
That shocked people because they didn't see it coming.
So that was a big thing that changed the ability to choose traditional or Roth or pro rata. And again, pro rata is by the proportion, not the same dollar amount, not you took 10 grand out of here you're going to take 10 grand out of there. No, you took 100% out of here. You're going to take 100% of there. So we were able to intercede with some people before that. But again I heard horror stories thereafter, but that is long gone. So you also after seven and a half or what would be rmd, used to be you had to take a full withdrawal after that if you were separated, no longer. No longer. But now while you're working, if you work past your R and D age, you are not forced to take an RMD while you're working.
But if you a do a rollover, you will then be subject to RMDs on the rolled over amount or if you then retire, that's when even TSP will be subject to the RMD that is the required minimum distribution at that time. And don't be scared the RMD because it's a little guy, well it's bigger every year but you also have a lower balance. So it stays pretty much the same if you're only taking the RMD. And right now if you turn 73, it's the 4ish percent a little bit over. So you say, oh, it's 4% of my current balance. If I got a million dollars it's 40 grand. If I have 500, it's 20 grand. If I have 250, it's 10 grand. You see.
So it's not horrible. But this is part of planning with somebody like me. We always say start with the end in mind. Let's start making plans for TSP for the long run. Because my goal is for you to live to be 101, not just 73, not just 63. Let's go for the long haul.
And this is a big deal. So RMB is we kind of plan for. But used to be you had this restriction, you had to do this big withdrawal. No longer. Now installing the payments. This is interesting. Used to be that installment payments, once you turn them on after retirement. Now this. Let's define an installment payment. If you retire and you don't annuitize, which you should not anyway, in my opinion that is taking the lifetime income from tsp. There are other sources that can be way better for you. Call me for details on those because I live and breathe that. But installment payments is not intended to be lifetime. It is intended to sort of patch up your income temporarily. Especially when I have people taking the supplement which is less than what your Social Security will be. And so we turn on a temporary income as an installment from TSP between retirement at, say, 58 or 59, all the way till age 62.
Because we know what your income's going to be when you reach age 62 and have that Social Security. So let's say your supplement is going to be, I don't know, $1,000 a month, but your Social Security is going to be 1800. Doggone it were $800 a month, less all the way till then. Some people will say, I got to have it. I got to live on it. Okay, return on installment payment. That will be a monthly $800 for the next, whatever, four years, three years, depending on your age. But then at 62 and installment, you can cut it off. You can say, stop paying me or pay me more, pay me less. You've got this kind of cool, full water spout, less water spout, turn the water spout off. You have the freedom over that, which is kind of great. Now, there's other payment schedules you could do monthly or quarterly or annual. Nobody does the quarterly or the annual.
Mostly just you. The monthly. I mean, somebody. I'm sure someone does. Somebody's come out. I did the quarterly. She's wrong. Well done. That's pretty cool. Most do monthly. So the benefit of installments is exactly like I explained. You can kind of replace some income knowing that you only need it for a temporary basis. It was never designed to be lifetime. Because let's say you turn on $2,000 a month and forget all about it. You wake up eight years later, 10 years later, 13 years later, no balance anymore, because you just never stopped the flow of your money. And I've only had two people say this to me now. Two people I think is too, too many.
But that's why I also help people focus on IRAs. Like, hey, let's do the math first. Let's see what your income is going to be. And if we're in the red, okay, what dollar amount is in the red? Can we take a portion of your TSP or 401 and then use that to guarantee a lifetime income of that amount in the red or. Or at least as much as we need to be in the black for our bills. Right, Trivia for you. That's why they call it Black Friday on what you call it Thanksgiving, right? Because businesses are in the red on their ledger, and they want to get back in the black to be a positive number, not a negative red number. There's your trivia for today, Alex. I'll take. I'll take Thanksgiving for 500 double jeopard. So there you have it. There's a lot of things that change to the good for your TSP options for withdrawals back in 2019 in the modernization act and you can use different versions of them. People always ask me, what's the best thing to do with my tsp? Well, usually we're doing a variety of ways you can use it. Sometimes we leave some and roll some and take it installment. You see, there's a mixture of things. So reach out, get scheduled. If you've never been scheduled me, now is the time to get started.
It's not just me. We have a whole team across the nation. If you want face to face, we can make it happen. We have workshops going on all the time.
If you want virtual, we can make it happen. That is the easiest, as you can imagine, because we can do it real time, face to face. You can be as comfortable as you want to in your PJs, in your living room, with your spouse and go over everything with you, soup to nuts. Our goal is to get you, and I use it as a cliche, retired right the first time. But that is the goal and I am very proud to say that in terms of fed retirement, I have a very untarnished history where people retired and didn't have to go back to work. They only went back if they wanted to riff notwithstanding, outside of this, outside of the rift. So I hope that helps reach out. We'll talk to you soon. Let's get scheduled. You and your spouse will make a good plan for you to go the right way the first month.
[00:11:46] Speaker A: Thanks for listening to Reyna Retirement. With a strong commitment to ethical standards, Rayna works hard to find the right solution for each individual or family who reaches out for advice. To contact Reyna directly, call 850-450-6500. That's 850-450-6500. Or to reach the team at American Federal Benefits consultants, call 1-800-872-That's 1-800-872-8857. You can also go online to americanfederal.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to be educational in nature and is does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the federal government or any state government. The terms CSRs, FERs, FELI, and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal Benefits Consultants, agents consultants, or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
