Early TSP withdrawal


Q. I am 41 and due to unemployment for two years following my active-duty retirement, I need to withdrawal all my Thrift Savings Plan funds. When the 20 percent is withheld from my payment, does that then get applied to my tax liability for this year? I understand that I owe 20 percent in taxes on the money, so is it set aside like federal taxes withheld in a regular paycheck? In addition, there will be a 10 percent penalty due to my age? Is the penalty automatically taken out if I elect for a total withdrawal, or must I set this aside when filing 2012 taxes?

A. The withholding from your withdrawal will not include an allowance for any early withdrawal penalty you may owe, and is just a deposit against your future tax liability. It does not reflect the actual amount you will owe, which will be determined when you file your tax return for the year.


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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