TSP withdrawals


Q. What are the answers to the below questions if under age 55? For instance, taking a early retirement option at age 53 — how would the TSP 10 percent penalty apply using the original scenarios in the question??

Original question:

Q. I have read many of the articles and TSP literature and I am still a bit confused. As a federal law enforcement officer over age 55, I plan to retire later this year. I have read that if I want to take withdrawals from my TSP account prior to age 59½, I can do so without having to pay the 10 percent IRS penalty for early withdrawal, so long as I do it in an annuity (not interested) or, based on life expectancy (not interested as it provides more funds than I want at the beginning of my retirement), or as “substantially equal periodic payments. (not sure who determines this payment, me or IRS).

A. As long as you retire during or after the calendar year in which you reach age 55, you will not have to worry about the early withdrawal penalty, since it will not apply to you. You will have access to your TSP account through the various options offered by the TSP without further restriction.

My questions:

May I set the amount of the monthly payment, say $1,000 each month, and so long as I maintain that same payment amount each year until age 59½ or for five years, whichever is the later (in my case the five years)? If yes, will I still avoid the IRS early withdrawal penalty?

May I change the amount of the monthly payment (increase or decrease) prior to turning age 59½ or five years, whichever is greater and still avoid paying the 10 percent early withdrawal penalty?

A. You determine the Substantially Equal Payment Amount using one of three allowed methods – annuitization, amortization or life expectancy. Once commenced, the calculated payments must continue and may not be altered (although the life expectancy method of calculating the payment amount will produce changing payments each year) for the longer of 5 years or until you reach age 59 1/2, if you want to avoid the penalty. The rules for using a Substantially Equal Periodic Payments to avoid the early withdrawal penalty are complicated and rigid, so care, and perhaps some professional help, should be used.




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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