Dear Dr. Don,

I retired from the federal government a couple of years ago when I was 56. My Thrift Savings Plan is earning only a small bit of money, and I'd like to transfer the balance to something else. I'm thinking of an individual retirement account that's invested in stocks and bonds or an annuity, but I'm also worried about dealing with taxes and early withdrawal penalties. Any advice?

Thanks,

-- Danny Downtime

Dear Danny, Rolling over the money into an IRA is an option, but it's not likely to be your best option. I'd recommend staying with the Thrift Savings Plan for its investment choices and low annual expense ratios. If you aren't earning much on the money, you can review your investment choices and change how the money is invested.

You can't avoid the taxes, but the early withdrawal penalty doesn't apply to a worker who separated from service or retired at age 55 or older. The TSP website has an electronic booklet you can download, "Important Tax Information about Payments from Your TSP Account," that explains this provision in the tax code.

The decision whether to annuitize the money in the portfolio shouldn't be made without a thorough consideration of all of your retirement income sources, your retirement income needs and your risk of outliving that income. I suggest getting professional financial advice in making that decision. Paying a fee-based financial planning professional for a few hours of his or her time could help on both the annuity front and the investment allocation decision.

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