Q: I turned 55 this year and just applied for disability retirement under the Federal Employees Retirement System. I have large bills I want to pay off. My income will drop the first year, then will decrease $1,000 the following year before continuing at that rate. I realize if I keep my Thrift Savings Plan or roll it over once I leave service, I will not be able too take a loan on it.
I realize I will need to pay my fair share of taxes, but is there a way I can work it out that I can take a loan on the money and pay it back over the next few years until I turn 62, thereby avoiding such a large amount of tax for this year (the income will put me in a higher tax bracket)? Also, could you explain how I could prevent a penalty if I should have to withdraw funds?
A: You’ll have to take withdrawals and pay the taxes, but because you’re separating from service during or after the year in which you reached age 55, you will not be subject to the early withdrawal penalty.