Q. If I retire at age 56 in January 2017 with 20 years’ federal law enforcement service with the Federal Bureau of Prisons, will there be a cap on the amount of money I can earn in 2017 and each year after while drawing the FERS supplement along with my pension? Also, if I draw out a one-time lump sum from my TSP to build a small cabin, is that considered earned income and will it cause me to lose my FERS supplement? What will be the tax rate for the TSP lump sum withdrawal at age 56? Will I have to pay a 10 percent withdrawal penalty as a federal LEO?
A. Your TSP distributions are not counted as earned income for computing any offset to the SRS. Your distributions will be added to your tax return for the year in which they are received and taxed as ordinary income. If you retire at age 56, subsequent TSP distributions will be exempt from the early withdrawal penalty.