Q. I just retired from the U.S. Postal Service as a FERS employee at 56 years of age. I have two outstanding loans against the TSP. My question is that if I elect not to pay them off within the 90 days and pay the tax on it for 2018, would that count as earned income against the $17,400 I am allowed to earn before being penalized on my Social Security supplement bridge? I am guessing that I would only be penalized 10 percent for early withdrawal in which case it still might be best for me to pay it off as I can after that make a one-time withdrawal without penalization before 59 1/2. Am I correct in my assessment?
A. Under the circumstances you describe, the distributions will not be counted as earned income and will not be subject to the early withdrawal penalty, since they will qualify for the “Age 55” exception.