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: Mr. Smith’s account is evenly divided between traditional and Roth. Each withdrawal will consist of 50 percent from the traditional TSP and 50 percent from the Roth TSP. From the way I read it, selective withdrawals from each fund are not allowed.
I am a firefighter who faces mandatory retirement at age 57. I have been contributing to both funds in TSP for over 30 years. Having met the traditional TSP rule of retiring at 55 or later, I elect to receive equal monthly payments for 20 years.
Since I have not reached 59½, am I going to be penalized for early withdrawal from the Roth TSP? There is no penalty for the traditional fund. If different withdrawal rules apply to each fund, should I not have the option of the leaving the Roth TSP untouched until I turn 59½?
A. Distributions of earnings from your Roth TSP will be subject to tax until you reach age 59½ unless you roll them over to a Roth IRA account.