Q: I am a federal firefighter under the Civil Service Retirement System who will be eligible to retire next year with 28 years of service at age 50. When can I start withdrawing funds from my Thrift Savings Plan without getting penalized?
A: If you receive a TSP distribution before you reach age 59 1/2, in addition to the regular income tax, you may have to pay an early withdrawal penalty tax equal to 10 percent of any portion of the distribution not transferred or rolled over. The additional 10 percent tax generally does not apply to payments that are: paid after you separate from service during or after the year you reach age 55; annuity payments; automatic enrollment refunds; made as a result of total and permanent disability; made because of death; made from a beneficiary participant account; made in a year you have deductible medical expenses that exceed 7.5 percent of your adjusted gross income; ordered by a domestic relations court; or paid as substantially equal payments over your life expectancy.
A special note for members of the uniformed services: The penalty tax does not apply to any portion of a TSP distribution (including a loan) which represents tax-exempt contributions from pay earned in a combat zone. Relief from the 10 percent early withdrawal penalty is available to eligible reservists called to duty for more than 179 days. The reservist must have been activated after Sept. 11, 2001 and must have received his TSP distribution between the date of the order or call and the close of the active-duty period. The reservist may also be eligible to repay the distribution to an individual retirement account (not the TSP). Participants should consult with their tax advisers, legal assistance officers or the IRS regarding this relief.