IRS penalties for early TSP withdrawals


Q. I began federal civil service 10/22/1983 and retired from the U.S. Department of Agriculture 5/13/2013 on an “early out” offer.

For my nearly 30 years of service, I never left CSRS, paid Social Security, and qualified fully for CSRS Benefits at my retirement. I did, however, participate in the employee-only [no match from my agency]paid deduction that was an “option” for CSRS to build a THRIFT Saving Program that currently has an approximate current value of $235,000.

I retired early and have been receiving monthly retirement benefits since 5/13/2013 [and thus a substantially reduced monthly benefit, but at my option vs. waiting nearly four years later]. I have not taken any funds from my THRIFT Savings Plan Fund over the five-year period that has elapsed since I retired. I had the understanding that if a CSRS worked to their earliest normal retirement date, for me 1/2/2017 [my 55th birthday], retired as of that date, that THRIFT Savings could be utilized “early” to supplement income [without being subject to the early withdrawal penalty]throughout the window between when I retired at 55 years old and the IRS-based age of 59.5 years old.

Have I been incorrect in my understanding of this information for 30 years? What is the real circumstances for employees who begin drawing on their THRIFT-like funds for the window between “actual retirement” and 59.5 Years of age?

In Dec 2017, I decided to purchase a second home since I was a year past when I would’ve retired at age 55 and I planned to utilize $35,000 of my THRIFT to pay in full the remaining balance in early 2018. I was working under the presumption that I would not be subject to the early withdrawal penalty since I would have retired at 55 years old and I’m now 56.5 years old.   

Is there any exemption or extenuating circumstances related to early retirement that apply and if my question above is true, does my accountant just need to write a letter explaining why I would not be subject to the penalty? If the above is true, did my taking “early out” cost me the same benefits of no-penalty withdrawal between 55 and 59.5 I would have been entitled to if I had retired normally and I was not informed of that loss of benefit?

A. If you receive a TSP distribution before you reach age  59 ½, 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 section 72(t)(10)(B)(ii) of the Internal Revenue Code);
• 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% 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.


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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 and view his blog at

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