Q: I retired three years ago at age 56 with 33 years of civilian service in the Civil Service Retirement System. I elected to take my Thrift Savings Plan contributions and roll them over to a qualified program. I began drawing off my investment in the fall of 2008. After talking to our tax adviser this year, I learned that I was penalized for early withdrawal in 2008 and will be again in 2009 because I will not be 59 1/2 until June of this year.
After attending a retirement seminar several years ago, I was informed that because I was under CSRS, I would not be penalized for the distribution of my investment prior to 59 1/2. Which is correct?
A: As long as you separate from service during or after the calendar year in which you reach age 55, you will have access to that employer’s sponsored retirement plan (TSP, 401(k), etc.) without penalty. This rule does not apply to individual retirement accounts, however, so rolling over your balance from the TSP to an IRA will cause a problem. Similarly, rolling your TSP balance over to a 401k plan sponsored by an employer for which you are actively employed, and then taking withdrawals from that account, will also cause a problem.
