Q. I will be 55 in August and plan to retire in January after 22 years’ law enforcement service, two years’ military service, plus three years’ other government service, approximately 27 years’ total government service. All my debt will be paid in November. I would like to take a partial withdrawal from my TSP, $40,000 of the $120,000 currently in my TSP account. If I understand what I’ve been reading correctly I will not be subject to the 10 percent withdrawal penalty correct? Am I required to repay the $40,000 that I withdraw and will I have to claim it as income even though I plan on making it a gift to my children?
A: Assuming that you wait until you are retired to withdraw the money, you will not be subject to the early withdrawal penalty, you will not have to repay the money and you will have to report it as a taxable distribution on your tax return.
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