Withdrawal/rollover penalty


Q. I plan to take an early out (Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay) effective Aug. 31, 2011. I am under the Federal Employees Retirement System plan. At the time of my retirement, I will be 54 years old. I have read that if you retire before age 55, your withdrawal/rollover is subject to a 10 percent penalty.  I have also read that any action can be postponed, but postponed to what age? 55 or 59.5? Does this mean I cannot withdraw and/or roll over to an Individual Retirement Account until I reach age 59.5? I don’t understand why I would have to let my money sit from age 54 to 59.5 just because I take a VERA/VSIP. Would you please let me know any and all options I may have?

A. You may delay taking your Thrift Savings Plan money until required minimum withdrawals begin, usually at age 70½.

From the notice posted at https://www.tsp.gov/PDF/formspubs/octax92-32.pdf:

“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% of any portion of the distribution not transferred or rolled over. The additional 10% tax generally does not apply to payments that are:

* Paid after you separate from service during or after the year you reach age 55;

* 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 7.5% of your adjusted gross income;

* Ordered by a domestic relations court; or

* Paid as substantially equal payments over your life expectancy.”


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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