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.