Q. I will be 50 years old in September 2017 and will have more than 20 years of federal law enforcement service. I plan to retire Dec. 31, 2017. I know I must leave my retirement funds in the TSP to qualify for the Public Safety Act’s penalty-free withdrawal options. However, I plan to withdraw about $150,000 from the TSP and start a lifetime annuity with the remaining $400,000. Will the $150,000 and/or the $400,000 withdrawals will be penalized? (I know I’ll have to pay tax, which is fine.) Can I take the $150,000 withdrawal and then a few years later initiate the $400,000 annuity (all before the age of 55 but without early withdrawal penalties)?
A. Withdrawing TSP funds in the form of a lifetime annuity is a listed exception and will always avoid the IRS early withdrawal penalty. A lump sum is exempt from the penalty if it meets one of the recognized exemptions to the rule. As long as you have not yet filed form TSP-70, you may do so to request an annuity as part of a full withdrawal.