By Mike Miles
November 18th, 2013 | Uncategorized
Q. I am a FERS employee and will have 30 years of service at age 56, my minimum retirement age. Thus, when I retire at 56, can I start withdrawing from my Thrift Savings Plan without any tax penalty? Or do I have to wait until 59½ to start withdrawing from my TSP to avoid any tax penalty?
A. In the circumstance you describe, your TSP withdrawals will not be subject to the early withdrawal penalty.
November 11th, 2013 | Uncategorized
Q. I will be 56 this month and have 27 years of federal service. I plan to retire in February. Will I be able to draw an immediate monthly income from my Thrift Savings Plan upon retirement without incurring the 10 percent penalty for early withdrawal?
October 17th, 2013 | Uncategorized
Q. Why do the Thrift Savings Plan publications say age 59½ is the earliest someone can receive TSP monies without a penalty, yet I read in your responses to questions that as long as someone retires in the year in which they reach 55 or later, there’s no penalty? I heard someone else at work yesterday who plans on retiring under MRA+10 saying he has to wait until 59½ so he won’t incur a penalty. Why are there two different prevailing understandings?
A. The standard rule applies the early withdrawal penalty to those who have not yet reached age 59½. There is an exception to this rule for participants in the TSP who separate from service during or after the year in which they reach age 55. There aren’t two different prevailing understandings. There are those who understand, and those who misunderstand the rules.
October 17th, 2013 | Uncategorized
Q. I am an air traffic controller who will be forced to retire in May 2016 when I turn 56 with 28½ years of service time. If I retire anytime between Jan. 1, 2015 (the year I turn 55) and May 2016, will I be able to take out a lump sum and monthly payments from my Thrift Savings Plan without the 10 percent tax penalty? Do I have to follow the life expectancy requirement for receiving monthly payments, or am I free to set the payment amount as I wish and adjust it once a year?
A. Since you are separating from service during or after the calendar year in which you reach age 55, your TSP withdrawals after you separate will be exempt from the early withdrawal penalty.
October 17th, 2013 | Uncategorized
Q. I am a civilian employee. I have FERS and the Thrift Savings Plan. Is there any provision that would allow me to cash out my TSP for it to be applied directly to my federal student loans without any type of penalty?
A. Check the list of exceptions on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. Student loan repayment is not the basis for an exception to the early withdrawal penalty.
October 9th, 2013 | Uncategorized
Q. My husband happens to be one of the 800,000 who got furloughed. I have an IRA of $3,400. Would I be able to cash that in without a penalty to get us by for, say, a month or so, depending on how long the furlough lasts?
A. There is no exception to the early withdrawal penalty for a government furlough. You will be subject to the penalty unless you are age 59½ or meet one of the other exceptions to the penalty described in Internal Revenue Service Publication 590.
October 7th, 2013 | Uncategorized
Q. I have two Thrift Savings Plan accounts — one with the military and one civilian. Because of my financial situation, I would like to take some money out for debt consolidation. I was weighing the option of borrowing from my civilian vs. closing my military account (which I am no longer contributing to) and using those funds.
If I close my military account, can I roll a portion of it over to my civilian account, and use the rest?
What/how much of a tax penalty am I looking at if I do either?
Would it make sense to close my military account and just borrow from my civilian account? I may possibly get called back on active duty.
I need to make a decision within the next two weeks as I have a number of financial obligations hitting the first of November.
A. You may use form TSP-77 to request a one-time partial withdrawal from your civilian and/or your uniformed services account(s) if you are at least age 59½ or separated from service. You may combine the accounts if you are separated from service using form TSP-65. If you are subject to the early withdrawal penalty, the penalty is 10 percent of the withdrawn amount. There is no penalty for taking a loan at any age. Unfortunately, there is insufficient information here for any specific advice.
October 6th, 2013 | Uncategorized
Q. How will Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay affect my retirement benefits (annuity supplement, Social Security, pension and Thrift Savings Plan withdrawals)? I am an Air Force civilian GS-13, age 52, with 26 years of service under FERS.
A. A VERA/VSIP will not affect the rules governing your TSP withdrawals. You will be subject to the early withdrawal penalty until you reach age 59½ unless you can qualify for one of the exceptions listed on the left side of Page 7 of this notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
October 3rd, 2013 | Uncategorized
Q. I recently lost my job and withdrew my entire Thrift Savings Plan savings. I know that there is a 20 percent penalty for early withdrawal that they took out. Also, another 10 percent penalty that they hit you with at the end of the tax year. Is there any way I can lessen the blow? Are there any exemptions that I could put that money to, such as paying of my son’s college loans, home improvement or repairs?
A. The 20 percent taken from the distribution was withholding against your federal tax liability for the year of the withdrawal. The 10 percent early withdrawal penalty, if applicable, will be calculated and due when you file your tax return for the year. The exceptions to the early withdrawal penalty are listed in the left-hand column on Page 7 of this notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
September 30th, 2013 | Uncategorized
Q. I’m planning on a FERS retirement at the end of December 2014. At that time, I’ll have already met the minimum retirement age and will have credit for 32 years of service. I’ve read that I can withdraw funds from the Thrift Savings Plan without an early withdrawal penalty upon my retirement, and that approximately 20 percent will be withheld for federal taxes, but what I don’t know and can’t seem to find is the amount of money that will need to be paid to my state of residence, West Virginia. My plan is to use the money in my account to pay off a mortgage and other debts, and leave the remainder in a savings account. Are there any other issues I should be concerned about?
A. I can’t comment on your plan of action, since I don’t know nearly enough about your circumstances and objectives. There is no withholding from your TSP withdrawals required for state income taxes. The amount that you will ultimately owe West Virginia for taxes can only be determined by preparing your tax return for the year. A tax preparer should be able to give you an estimate if you want to make estimated tax payments or request state tax withholding.