Q: I am currently in a Civil Service Retirement System 6C designated law enforcement officer position. Aside from my CSRS retirement benefits, of which I will reach the maximum annuity of 80 percent at the end of this year, I have also contributed to the Thrift Savings Plan. I am not planning on relying on my TSP funds to supplement my retirement.
I know there are ways to avoid the 10 percent tax penalty for early withdrawals before turning 55 years old (taking the money in a monthly annuity, etc.). I would like to take all of my TSP out and pay any taxes owed but avoid the penalty. The TSP booklet says as long as I retire “in the year I turn 55,” I am not subject to the penalty. So, if I retire in January (2011 is the year in which I turn 55) but do not actually turn 55 until September 2011, I am not subject to the 10 percent tax penalty. Am I interpreting this correctly?
A: There has been some debate over this issue. It is my understanding that you would not be subject to the early withdrawal penalty at any time during 2011, but you should consult a qualified tax adviser, someone who will actually prepare and defend your return, before proceeding.