Q. I am a 56-year-old considering early retirement, no disabilities. Example: If I withdraw $60,000 from TSP, I would have nearly $20,000 taken for taxes and 10 percent penalty, but if I withdrew at the end of the pay year, will the additional $40,000 that I receive count towards my “High 3” for Social Security payment calculation? Or if I grossed $70,000 in earnings that year, and took the $40,000 from TSP after penalties and tax, would my income for that year be $70,000 earnings plus $40,000 TSP withdraw = $110,000 for that year’s income?
A. TSP distributions are not considered earned income and don’t count toward your Hi-3 or Social Security calculations. They are considered ordinary income for tax purposes, however.