Q: I retired this past January from the U.S. Postal Service and am wondering what to do with my TSP [Thrift Savings Plan]. I don't what to touch it until I am at least 66, which is a year and half from now, My plan is to take it out in one lump sum and pay all the taxes at that time. Then I would have it if I need it and if I die my daughter will not pay a penalty to get the money out. My monthly annuity from the USPS and monthly check from Social Security, when I start drawing it, should be enough to live on. But then everything looks good on paper! I know the money can stay in the account until I am 70 ½. Also I have control on where to invest it. Just cannot add to the sum that's there. Is taking my TSP in one lump sum a smart or dumb move?


A: Figuring out how best to take money out of retirement savings is more difficult that deciding where to invest retirement savings during our working years.

That's why my main recommendation is to hire a fee-only financial planner, tax accountant or comparable professional to run the numbers and discuss trade-offs of different strategies with you so you're able to make an informed decision. Even more important, I would involve your daughter in any meetings and decisions. Your question is an easy way to jump-start valuable conversations about family finances as you get older.

That said, I don't like the personal economics of taking all the money out of your Thrift Savings Plan [similar to a 401(k) and 403(b)] in a lump sum. A major reason is the tax hit.

"The lump sum would count as taxable income in the year of the distribution and push this person into a higher tax bracket," says Joel Greenwald, a certified financial planner with Greenwald Wealth Management. "It's much better to take the money out in a tax-efficient and tax-aware manner each year to minimize taxes."

If you really don't need the savings to live on, you could simply leave the money in the account and get several more years of tax-deferred growth (hopefully). The investment choices in the TSP are limited but good. However, you have other choices with TSP to consider. For example, you can make a one-time partial withdrawal, leaving the rest of the money in the account. You have the option of withdrawing all the money as a series of monthly payments or as a life annuity or a combination of choices. Did I mention that the decision takes time to research?

Another option is to withdraw the money tax-free by transferring the retirement savings into a rollover IRA. You could then withdraw the money when you need it. You'll only pay ordinary income taxes on the amount withdrawn. You can put the money with a financial institution or mutual fund behemoth that gives you more investment options than the TSP. Whether you keep the money with the TSP or establish a rollover IRA you have to start taking money out at age 70 ½, the age when the required minimum distribution kicks in. Your daughter can avoid a big tax ­liability as your beneficiary through an inherited IRA from the TSP or your IRA. Just be aware that the rules concerning inherited IRAs have a number of difficult twists and turns that can trap the unwary.

In summary, your question involves a lot more than lump-sum-vs.-staying-put. A good website for exploring various scenarios on your own is at www.analyzenow.com.

Chris Farrell is economics editor for "Marketplace Money." His e-mail is cfarrell@mpr.org.