Ask The Experts: Money Matters

By Mike Miles

Early withdrawal penalty

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Q. I am a retired law enforcement officer with 25 years of service. I retired from the Bureau of Prisons in December 2009 at age 48. I am receiving my pension and the supplemental annuity. I have $300,000 in my TSP account and want to start withdrawing it. What are my options to begin receiving money from the TSP without buying an annuity and not having to pay the 10 percent early withdrawal penalty? Can I take a one-time distribution of say $100,000 without penalty? Can I withdraw the whole amount without penalty? Can I take $2,400 per month out which will last for at least 10 years or do I have to use the IRS life expectancy formula? Am I exempt from this penalty as a qualified public safety employee or special category employee? Read the rest of this entry »

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TSP to IRA

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Q. Can I take my money out of the TSP and pay the penalty? Is there any way to get all my money out without having to retire or quit? If so, can I then move it into another self-directed IRA?

A. The only ways to remove money from your TSP account before reaching age 59-1/2 while you are still a federal employee are: a loan and/or an in-service financial-hardship withdrawal. Neither of these may be rolled into an IRA account.

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TSP withdrawal

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Q. I’m 26 and I’m planning to get out of the Army next year. If i withdraw all the money and stop my TSP account after leaving the military, would I be charged for anything? If yes, what would it be ?

A. You will be subject to income tax and the 10 percent early withdrawal penalty unless you qualify for one of the exceptions on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

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Tax question

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Q. I’m a federal employee aged 58 retiring with 30 years’ service, and I would like to take 109,000 from my non-Roth TSP to pay off mortgage. Besides federal tax, would I also have to pay a 10 percent penalty because I am not 59 1/2 years old? Would the federal government withhold 20 percent penalty or taxes or would it be more?

A. There will be mandatory withholding of 20 percent, but the early withdrawal penalty will not be assessed. Details are available at

https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

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TSP withdrawal

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Q. I am an Air Reserve Technician and 53 years old. I have lost my military requirement at no fault of my own, and now I am being made to retire from the civilian side (FERS). I have a total of 20 years. Can I withdraw all of my TSP from the civilian TSP and if so, what is the early withdrawal penalty and taxes associated with doing so? I am looking at paying off 50 percent of my debt. My TSP is around 75,000.

A. Since you are separating from TSP covered service before the calendar year in which you reach age 55, you will be subject to the 10% early withdrawal penalty unless you meet one of the other exceptions listed on Page 7 of the notice posted at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

 

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IRS penalty on partial TSP withdrawal

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Q. I am a FERS employee (6c law enforcement coverage) planning to retire in January 2015 after 31 years in federal law enforcement. I plan to build my retirement home soon after and have need of a partial withdrawal from my Thrift Savings Plan at retirement. Is this partial withdrawal subject to the 10 percent IRS tax under the one time withdrawal provision, and if so, do I have any option to avoid that penalty while still accessing about a third of my account?

A: If you retire during or after the year in which you reach age 55, you will be exempt from the early withdrawal penalty on any kind of withdrawal. If you retire before that point, you’ll be subject to the penalty until you reach age 59 1/2 unless you qualify for one of the exceptions listed on page 7 of the notice at: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

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TSP early withdrawal penalties

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Q. I just turned 57 in January and am planning on retiring on June 1, 2014. I am CSRS and currently working with the U.S. Postal Service. I was hired by the Postal Service in March 1982 and have met my minimum retirement age and time in service. I also have 4 years prior military service in the Navy from 1976 to 1980 on active duty. Will I be penalized if I make a TSP withdrawal prior to turning age 59 1/2 years of age?

A. No. You will have retired after the calendar year in which you reached age 55 and, therefore, qualify for one of the exceptions to the early withdrawal penalty.

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Partial withdrawal, Part II

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Q. I retired from an air traffic control job at age 53. I am receiving monthly payments based on my life expectancy. I will be age 55 in April. Can I take a partial withdrawal? If not, are there any options? I need to access more funds. Will there be a tax penalty on the amount I have received? Will my partial withdrawal be penalty-free now that I am 55? Are there other options, such as increased monthly payments?

A. You may not take a partial withdrawal once monthly payments have begun. You may increase your monthly payment amount using Form TSP-73 or you may request a final withdrawal, but making any change to the series of substantially equal periodic payments before you reach age 59½ will subject all of your early distributions to the early withdrawal penalty.

The rules for all of this are complicated. You should consult a CPA before proceeding.

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TSP withdrawals without penalty

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Q. I am a FERS employee with a retirement date of May 2018. I will reach my minimum retirement age of 56 at that time, with 36 years of service. Am I eligible, at that point, to receive nonpenalized withdrawals, either payments or lump sum from my Thrift Savings Plan account? Or do I have to wait until I reach age 59½ to not be penalized?

A. You will be exempt from the early withdrawal penalty under those circumstances.

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Tax implications for TSP withdrawal

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Q. Whether I retire sooner or later than the year I turn 55, what kind of tax implications will I have in taking a partial lump sum or the whole balance lump sum for something like a vacation home?

A. If you retire from Thrift Savings Plan-covered employment during or after the calendar year in which you reach age 55, you will be exempt from the Internal Revenue Service 10 percent early withdrawal penalty for any withdrawals you take.

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