Q: I am a CSRS employee and am going to retire in May 2012 from federal service/military service (Air National Guard) at age 55. When I retire, I want to withdraw all TSP contributions I made as a CSRS employee. I have 3 questions that I would like to get the answers to: Will I have to pay taxes on the amount (currently a little over $55,000)? Are there any penalties I will have to pay when I request a full withdrawal of these funds? What is the tax rate that I would be expected to pay if I have to pay taxes on the amount immediately following withdrawal?
A: Your withdrawals will be taxed as Ordinary Income. Since you are retiring during or after the year in which you reach age 55, there will be no early withdrawal penalties assessed. The taxes on the withdrawal aren’t due until you file your return for the year, but the TSP will withhold 20 percent from your distribution in deposit against your tax liability.