Page 110 - The Informed Fed--Hearn (edited 10.29.20)

need to cancel or change your designation. This is very important in the
case of divorce, legal separation, death of a family member, etc. If you
have already retired, you might want to complete a new designation of
beneficiary form (TSP-3) and forward it to the TSP Service Office. A
new form automatically supersedes any prior form that you may have
completed. If you do not have a completed beneficiary form, the
proceeds will be paid according to the government’s order of precedence
which may not line up with your desires. Don’t let the government take
control of dispersing your proceeds.

Bad Habit #4:

Paying off mortgages with TSP funds. We would all like to retire
debt free. Having no mortgage payment is a great position to be in. You
could take a lump sum withdrawal from the TSP to pay off the house.
This could be a big financial mistake that could cost you thousands of
dollars. Assuming a $50,000 dollar mortgage at retirement and a federal
pension of $35,000, the adjusted gross income of this taxpayer is at least
$85,000 dollars if the mortgage is paid off using the TSP. TSP
withdrawals are taxable income by the IRS. The difference in taxable
income rates in this example is 10 percentage points (15% at $35,000 of
income vs. 25% at $85,000 of income), costing this taxpayer an additional
$12,500 in tax that must be paid. While the idea of no mortgage is
attractive, the cost of paying it off with the TSP could be very high.

Bad Habit #5:

Neglecting to understand your TSP withdrawal options. We
have found that a large percentage of government workers don’t under-
stand how the different TSP withdrawal options work. It’s important to
know your options, but even more critical when you retire and have to
make a choice. Your money needs to be guaranteed to last a long time.

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