Ask The Experts: Money Matters

By Mike Miles

TSP withdrawal for financial hardship

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Q. I am 50 years old and have been employed with the federal government for more than 20 years. I have an outstanding TSP loan with a balance of around $14,000 from about three years ago. Each month I have difficulty paying all of my bills. I have no problem proving negative cash flow due to years of frozen pay, furloughs, increases in the cost of living including energy, food prices, medical expenses and prior debt. I see no circumstances where these costs will decrease nor do I see my income increasing in the foreseeable future. I need to take a hardship withdrawal, around $20,000, an amount sufficient to pay off the TSP loan along with the penalties and taxes. This would increase my monthly usable cash flow by around $500, enabling me to meet my obligations and start bringing down debt. I plan to work for at least 15 more years and contribute as soon as the penalty period is complete. I am aware of the taxes and penalties as well as the impact on my final TSP balance and retirement income. If I am willing to pay the taxes and penalties, can I not take this hardship withdrawal to prevent possible bankruptcy? A smaller withdrawal will do little more than a temporary reprieve and just prolong the inevitable in the hopes that my income may increase.

A. Recurring negative monthly cash flow will qualify you for a financial hardship in-service TSP withdrawal.

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