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.”


About Author

Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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