Early TSP distribution penalty


Q. I work for the Federal Bureau of Prisons and will be eligible to retire at 48 years old, with 25 years in federal law enforcement. I am familiar with the IRS additional 10 percent tax penalty for early withdrawals and some of the exceptions. I was curious to know if you could elaborate on the options that could possibly pertain to my situation?

A. You may avoid the early withdrawal penalty by taking withdrawals as a series of substantially equal periodic payments as defined by IRS rules. The amount of these payments can be determined in different ways and can vary widely according to the method you use. Using your TSP money to buy a life annuity also a way of qualifying for this exception. In any case, the payments must last for at least 5 years or until you reach age 59 ½, whichever is longer. The rules for this are complex and strict, and you should not do this without the advice of qualified counsel. If you don’t qualify for an exception, you’ll have to wait until you reach age 59 ½ to avoid the penalty.


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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