Q. I have more than 20 years of service as a federal law enforcement officer and will turn 55 in 2014. I plan to retire under FERS from my agency this year, before my age 55, and immediately (with no break in service) become re-employed on a full-time basis with another federal agency. I understand that my salary during the period of re-employment will be offset by the amount of my FERS annuity, and that retirement deductions (including Thrift Savings Plan contributions) will be made from my re-employment salary. I understand further that I would earn a supplemental annuity upon termination of re-employment if I am re-employed for more than a year, and that I could alternatively elect a redetermined annuity if I am re-employed for at least five years.
However, if my re-employment terminates before I reach age 59½ (but well after 55), and I wish to make withdrawals from my TSP account at that time, how will the Internal Revenue Service calculate my “separation from service” date? That is, will the IRS consider that I “retired” in 2013, prior to age 55, and thus apply the 10 percent penalty for early TSP withdrawals? (That would effectively force me to lock myself into the life expectancy withdrawal option for a full five years after the termination of my re-employment period.) Or, would the IRS determine that I “retired” on the date of the termination of my period of re-employment – after age 55 – enabling me to withdraw from my TSP account penalty-free?
A. To the best of my knowledge, your TSP account, if it is kept going through the transition in federal employment, will be eligible, in its entirety, for penalty-free withdrawal under the “age 55 exemption.” But, you should consult a qualified tax accountant before you make any plans.
