Q. I am 59½ and would like to take advantage of the opportunity to take a one-time withdrawal. What are the tax consequences of taking a withdrawal of, say, $50,000? Does it have to all be rolled to an IRA to avoid a tax penalty, or can it come out as cash and part of it be put into an IRA and part put into a spending account for paying down bills/mortgage?
A. Taking a withdrawal from your TSP account after reaching age 59½ will not generate a penalty. Any amount withdrawn and not rolled over will be treated as ordinary, taxable income when you file your tax return. You may roll over all or part of your withdrawn amount (as long as it is not considered a Required Minimum Distribution) to an IRA to further defer taxation.
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Additionally, I advise my postal clients to rollover TSP @ 59 1/2. The reason is simply because while you are awaiting the government to figure up your full regular retirement annuity, you will have access to your TSP (by the way of free withdrawals) that you can pull from without penalty or fees.
This is the flexibility feature of rolling over and not having to pay taxes on a lump sum amount that need.
My email is gsongboss67@yahoo.com and Gina is my
name.
Thank you.