Q. I am a 52-year-old Postal Service employee and am seriously considering liquidating my TSP account. What are the penalties for this action? Would there be a less painful way to do this to lessen the amount of money I will lose? A. The early withdrawal penalty is 10 percent of the gains in the account. The only way to avoid the penalty is to meet one of the exceptions listed on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
Browsing: early withdrawal penalty
Q. I am 55 years old and in the process of obtaining Postal Service disability. I want to know the tax ramifications if I withdraw my Thrift Savings Plan at 55 after separating from service. I will have 24+ years in. I have $200,000 and want to make monthly payments, not based on life expectancy. I want to withdraw $1,000 a month at 55 for 25 years or so until it is depleted. Am I subject to any additional penalty taxes? I called TSP and the Internal Revenue Service and was told that because I am spreading the monthly payments over 10 years, they would…
Q. Federal employees now have the option of investing a portion of their Thrift Savings Plan contributions into the Roth option. As many of us know, contributions to the Roth TSP are from after-tax income. The benefit comes from tax-free earnings. The way I understand the rules, we must contribute to Roth for five years and not make any withdrawals until we are age 59½. The traditional TSP also uses the 59½ rule, unless we retire at age 55 or later. When we make withdrawals from our TSP account, the money is divided proportionately from both the traditional and Roth funds. For example:…
Q. I retired as a FERS employee in July 2011 under a Voluntary Early Retirement Authority. I was 56½ with 28 years of service. During my years of employment, a Roth TSP option was not available. Therefore, all of my Thrift Savings Plan money is in a non-Roth/traditional account. I would like to use partial withdrawals to move this money into a Roth IRA. I know I must pay taxes but wondered if I must wait until I am 59½ to avoid penalty? I see references that a 10 percent penalty may not apply in the case of VERA and…
Q. I will be retiring this year after 21 years in the Air Force. I have $20,000 in the Thrift Savings Plan and was wondering if it would be better to roll it over into an IRA or pay off all of my credit debt. How big of a hit would I take for withdrawing my TSP early? A. It’s impossible to say which is better without some careful planning and analysis. If you trigger the early withdrawal penalty on a TSP distribution, you’ll pay 10 percent of the earnings distributed.
Q. I am taking the Postal Service Voluntary Early Retirement Authority on Jan. 31. I’ll be 56 then. I’d like to take a full withdrawal from my Thrift Savings Plan in monthly payments and then possibly roll the balance into an IRA at age 59½. I understand that 20 percent will be withheld automatically from my monthly payments for taxes. If I withdraw the balance a few years later, will the 20 percent figure still apply, or can I roll it into the IRA without the tax hit?
Q. I am a 47-year-old air traffic controller. I have completed my 25 years of service and retired Dec. 29. I have been investing in the Thrift Savings Plan my entire career. I want to draw a monthly payment of $1,500. If I do this, is it considered an annuity which I can claim under 72(t)? Or would it be better to buy an annuity equaling the amount I need and let the rest ride until I am 59½? A. The rules for satisfying the 72(t) exception to the early withdrawal penalty are complex and strict, so you should be…
Q. In January 2011, I was forced into retirement at age 62 due to a surgery that left me visually impaired. I took a partial withdrawal to pay off personal expenses. The Thrift Savings Plan deducted 20 percent for federal taxes before the distribution was made. However, when federal taxes were filed jointly, I owed $16,000 in taxes due to the TSP money. Why did I pay taxes twice when I met the 59½ age rule? A. That’s a question that only your tax-preparer can answer, although I doubt you paid taxes twice, and there would have been no early withdrawal…
Q. I plan to retire in 2013. I am 58 years old. If I want to pull from my Thrift Savings Plan will I have an early withdrawal penalty? A. No.
Q. I am retiring from the Army after 22 years of service and I am 45 yrs. old. Can I start withdrawing from the Thrift Savings Plan and avoid the early withdrawal penalty by taking a series of Substantially Equal Periodic Payments? How does that work? My life expectancy is 37.7 more years, according to the Internal Revenue Service, so is that the number of years my funds can be distributed? If so, do I then divide what I saved by 37.7 and again divide by 12 to see what my monthly payments would be? A. You may avoid the…