Q: The TSP website states that there is not a 10 percent penalty for early withdrawal if the withdrawal is made in a year that you have deductible medical expenses over 7.5 percent of your total income. If I made a withdrawal of $20,000 and my total income was $32,000, would there be no penalty at all? Seven and a half percent of $32,000 is $2,400. If my medical expenses were $4,400, would there not be a penalty, or would I have to pay a penalty on $18,000 {4,400-2,400 = 2,000}
A: As I understand the rules, the early withdrawal penalty will be waived to the extent that the withdrawn funds are used to pay qualified medical expenses that are in excess of 7.5 percent of your Adjusted Gross Income for the year. However, you should consult a tax adviser before proceeding.
