Q. I am 59½ and would like to take advantage of the opportunity to take a one-time withdrawal. What are the tax consequences of taking a withdrawal of, say, $50,000? Does it have to all be rolled to an IRA to avoid a tax penalty, or can it come out as cash and part of it be put into an IRA and part put into a spending account for paying down bills/mortgage?
A. Taking a withdrawal from your TSP account after reaching age 59½ will not generate a penalty. Any amount withdrawn and not rolled over will be treated as ordinary, taxable income when you file your tax return. You may roll over all or part of your withdrawn amount (as long as it is not considered a Required Minimum Distribution) to an IRA to further defer taxation.