Ask The Experts: Money Matters

By Mike Miles

Penalties for withdrawals

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Q: If I retire at the age of 50 (21.25 years of service), I have a question concerning TSP. If I choose the life expectancy withdrawal at that time, from what I gather it is penalty free. In the year I turn 55, can I switch to the monthly payment withdrawal, and would that too be penalty-free?

A: You’re talking about avoiding the early withdrawal penalty by using a series of Substantially Equal Periodic Payments (SEPP), which must continue for five years, or until you reach age 59 1/2, whichever is longer. You will find a SEPP calculator and additional information at Bankrate.com (http://www.bankrate.com/calculators/retirement/72-t-distribution-calculator.aspx)

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Comments

  1. Mike Moore Says:
    July 29th, 2011 at 1:48 pm

    For FERS retirees if you retire at age 50 you will have to wait till 59 1/2 to withdrawal a set monthly payment with no penalties. I f you retire in the year you turn 55 you will not have to pay the penalty.

  2. Nancie Sommerdorf Says:
    June 5th, 2012 at 3:46 am

    It is a much better choice in that case.