Q. I am a CSRS 50-year-old employee who would like to withdraw $80,000 from my TSP to cover unsecured debt. Is this smart? My debt is strangling me. What is the tax hit and how can I avoid it?
A. You don’t have the option to make a withdrawal unless you can demonstrate financial hardship under the TSP’s definition. If you take a Financial Hardship withdrawal, you will owe tax on the amount you take and you will be subject to the 10 percent early withdrawal penalty.
You can, and should consider taking a loan, instead. Taking a loan will avoid the tax and penalty. Loans are limited to $50,000 or 50 percent of your account balance, whichever is lower. You can learn more at www.tsp.gov under the topics “In Service Withdrawals” and “TSP Loans.”
