TSP withdrawals at age 55

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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.

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  1. Career LEO on

    Mike, I checked with my Tax Preparer and she referrd to the appropriate IRS Tax Publication (Here’s the link to the IRS publication:http://www.irs.gov/pub/irs-pdf/i5329.pdf) which cites the retirement plan (TSP, etc.) withdrawl exemptions. You are correct, as long as you separate from service (retire) during the year you turn 55 (don’t have to be 55 when you retire) you are exempt from 10% tax penalty, Better yet, the same IRS publication within the same exemption paragraph also states the penalty age exemption for public safety officers is 50 (vs. 55)

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