Q. I am retiring at the end of January 2016 with 32 years in the work force. I’m turning 55 in February 2016. Can I take a TSP loan out in January 2016, not pay it back, but pay the taxes? Does this still conserve my partial withdrawal option down the road? I was told I would have to take a partial withdrawal in the year I turn 55 to avoid the penalty, but if I do that, I eliminate the option later, and the amount I need would bump into a higher tax bracket.
I’d ultimately like to take a TSP loan out in January for the funds needed through the end of 2016, then in early 2017 take my partial withdrawal. Is this possible?
A. I understand it to be possible, but you should check with the TSP to be sure. The withdrawal will be considered to have occurred in 2016, so you will qualify for an exception to the early withdrawal penalty. I don’t believe that the declared distribution will count your once-in-a-lifetime partial lump-sum withdrawal.