Q: I am 62 years old and will retire this year under the Civil Service system after 41 years. I want to take all of my TSP out to pay off my second trust on my home this year. I was told when I withdraw my TSP I will pay a 26 percent withdrawal tax. Will I also have to pay an income tax on that money when 2011 income taxes become due?
A: Your withdrawal will be subject to 20 percent tax withholding, which will be applied as a credit against your tax liability when you file your tax return for the year.