Early withdrawal penalty


Q. I am a retired law enforcement officer with 25 years of service. I retired from the Bureau of Prisons in December 2009 at age 48. I am receiving my pension and the supplemental annuity. I have $300,000 in my TSP account and want to start withdrawing it. What are my options to begin receiving money from the TSP without buying an annuity and not having to pay the 10 percent early withdrawal penalty? Can I take a one-time distribution of say $100,000 without penalty? Can I withdraw the whole amount without penalty? Can I take $2,400 per month out which will last for at least 10 years or do I have to use the IRS life expectancy formula? Am I exempt from this penalty as a qualified public safety employee or special category employee?
A. You will be subject to the early withdrawal penalty unless you qualify for one of the exceptions on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. Notice that one of the options is to use a series of Substantially Equal Periodic Payments under the rules specified in IRS Code Section 72t. The payments must be carefully computed according to one of three formulas. The payments must be taken exactly each year and continue for a certain period to avoid the penalty. I suggest that you engage a CPA or qualified adviser before beginning these payments since the rules are complex and strict, and the penalty for violating them is severe.


About Author

Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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