Q. I have been out of the service now for over two years and have about $25,000 in my TSP account. I am in the process of buying a house and was considering closing my account to help with the cost. What would the penalties be for California, and would this be a terrible financial decision?
A. I’m not an expert in California tax law. You’ll need to consult a California CPA for some guidance. At the federal level, the distribution of funds from your TSP account will be added to your tax return for the year as ordinary income, and taxed accordingly. Depending upon your age and when you separated from service, there may also be a 10 percent early withdrawal penalty imposed.
It’s impossible to predict how the move will affect you in the long run without the benefit of a comprehensive financial analysis and a clear understanding of your goals and resources.
