Q: I turn 56 in December and I am retiring from the federal government. I would like to take the lump sum out of my TSP to buy a house. If I wait until my separation date of Dec. 7, I won’t get paid until January 2011. The Bush tax cuts expire at the end of December this year. Can I cash out my TSP a few months before to my last day without penalty because the cash out and retirement are in the same year and only a few months apart? Or must I wait until my actual separation date to access the full money? I really don’t want to claim the money next year in case the tax cuts aren’t renewed. My account has $273,000 in it right now.Can I cash out without penalty since I am 55 years old and will be 56 at retirement?
A: Before you can retire, at your age, you can access your TSP account through a loan or a financial hardship withdrawal. Otherwise you’ll have to wait until after you retire to do so. Once you retire, you will not be subject to the early withdrawal penalty.
With mortgage interest rates so low, you should consider taking a mortgage and using TSP loans and/or withdrawals to fund the payments over time, rather than paying it all up front.