Q. I have been reading your responses to the questions of federal agents and early withdrawals of their TSP accounts. The publication, 575, specifically states that law enforcement officers are exempt from the penalty if they are at least in their 50th year and the plan is a “qualified retirement plan.” IRS Form 8880 instructions refer to the TSP as a “qualified retirement plan” and in various other places within the IRS publications. Why do you insist it is not? Can you please clarify your position on this? Also, the IRS defines a law enforcement officer as one that is authorized to be armed, make arrests and serve warrants. Why are federal agents any different from nonfederal agents? I do not think your assessment of IRS publication 575 is accurate. Can you please educate me as to why federal agents are not exempt as other public safety employees?
A. The exemption only applies to withdrawals from defined benefit plans. The TSP is a defined contribution plan. I’m not your tax preparer, however, so you should consult yours before making any decisions.
1 Comment
Pension Protection Act of 2006 (PPA2006) contains a provision under Section 828 which allows state and local Public Safety Officers (PSOs) to withdraw funds from their defined-benefit plans without penalty when they retire at age 50. Senator Bill Nelson (D-FL), has introduced S. 1657 which would amend Section 828 to apply to all PSOs and any type of plan, defined-benefit and defined-contribution. If passed, this would allow retired federal PSOs to access their TSP account without penalty at age 50. Information to date indicates that the IRS is interpreting Section 828 to include federal PSOs under the current statute. When you file form 5329 with your Form 1040,in Part 1, Line 2, you then state reason code 01, that you are a PSO. Remember, the TSP only withholds taxes, it’s your responsibility to report and pay any penalty on your tax return.