Q. I currently have my TSP setup as a Roth account and I’m debating the MRA+10 option for retirement. If I take the early retirement option can I withdraw from my TSP or do I have to wait until I’m 59½ to avoid the penalty?
A. The earnings portion of your withdrawal will be taxed as ordinary income if your withdrawal is considered a Qualified Distribution. It will be Qualified it is taken at least 5 years after you made your first Roth TSP contribution, AND it is taken after you have reached age 59½.
If you receive a TSP distribution before you reach age 59½, in addition to the regular income tax, you may have to pay an early withdrawal penalty tax equal to 10 percent of any taxable portion of the distribution not transferred or rolled over. The additional 10 percent tax generally does not apply to payments that are:
• paid after you separate from service during or after the year you reach age 55 (or the year you reach age 50 if you are a public safety employee as defined in IRC section 72(t)(10)(B)(ii));
• annuity payments;
• automatic enrollment refunds;
• made as a result of total and permanent disability;
• made because of death;
• made from a beneficiary participant account;
• made in a year you have deductible medical expenses that exceed 10 percent of your adjusted gross income (7.5 percent if you or your spouse is 65 or over);
• ordered by a domestic relations court; or
• paid as substantially equal payments over your life expectancy.
The penalty tax does not apply to any portion of a TSP distribution (including a loan) which represents tax-exempt contributions from pay earned in a combat zone.
Relief from the 10 percent early withdrawal penalty is available to eligible Reservists called to duty for more than 179 days. The Reservist must have been activated after September 11, 2001, and must have received his or her TSP distribution between the date of the order or call and the close of the active duty period. The Reservist may also be eligible to repay the distribution to an IRA (not the TSP). Participants should consult with their tax advisors, legal assistance officers, or the IRS regarding this relief.
See the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf for more information about the taxation of TSP distributions.
