Q. Thank you for sharing the article on TSPs. Regarding the $50,000 loan before leaving service, will it still become a taxable distribution, as I’ll be retiring as a federal LEO with the new tax-free provision?
A. All distributions that are not successfully rolled over will be considered ordinary income, for tax purposes, in the year in which the declaration is made. Keep in mind, however, that the money in your TSP account will eventually be nicked for taxes, one way or another. The issue is not so much when, as it is how much. If the how much will be the same percentage of the distribution at any time, then the when doesn’t really matter.