Q: At the end of 2010, I’ll be retiring at the age of 50, with 23 years in federal law enforcement. I will need to take a withdrawal from my Thrift Savings Plan upon retirement. According to my agency, in order to prevent being assessed a 10 percent penalty for early withdrawal, I need to set up my TSP payments under the 72t rules (i.e. substantial equal periodic payments until after the age of 59½). However, according to IRS Publication 575, Pensions and Annuities, as I understand it, law enforcement officers are exempt from the 10 percent penalty for early withdrawal. My questions are: Why do I need to set up my withdrawals under the 72t rules if I’m already exempt from the 10 percent penalty? Can’t I receive fixed monthly payments (not calculated on life expectancy) and still not have to pay the penalty?
A: Your LEO status does not exempt you from the early-withdrawal penalty. Similarly, an arbitrary fixed monthly payment will not exempt you. The payments must be calculated using one of the three methods allowed under 72t.
3 Comments
I believe he is referrring to an IRS publication that says the 10% tax penalty does not apply to those “public safety officals who separate from service during the year in which thye reach age 50”, it exist I have seen it, the question is, “is the TSP program a pension plan as defined by IRS regs and does this exemption extend to TSP”?
There is an exception to the 10% tax penalty on TSP withdrawals for those employees who ‘separate from service during or after the the year they reach “age 55”, which in this case would not apply to the inquring LEO employee..
The age at separation from service for Public Safety Officers is 50, not 55. 55 applies for general civil service positions. Here’s the link to the IRS publication regarding distributions. The exception to the additional tax penalties begin on page 3. Exception 1 is what applies to you.
http://www.irs.gov/pub/irs-pdf/i5329.pdf
The exemption of the 10% early withdrawal penalty for public safety employees appears to only apply to State and Local government public safety employees and not federal public safety employees. I believe that is why you have to follow the exemption rules under IRC 72(t).