TSP and FERS redeposit


Q. When I retire I would like to pull money from my TSP (partial lump) to pay back a redeposit owed to my FERS. Can that be done and, if so, is the money taxed or suffer any other penalty? I will be 59 and 4 months upon my retirement Dec. 31, 2019. The redeposit is due 6 months prior to my retirement date. The amount I am paying back is $25,000.

A. Since you will not have reached age 59 1/2 before you retire, you will not be eligible to withdraw funds from your TSP account until after you separate from federal service. If you’re eligible to take a TSP loan, you could take a loan before you retire and use the proceeds to make the re-deposit. After you retire, if you don’t repay the loan, it will be declared a taxable distribution and the outstanding balance will be considered ordinary income, for tax purposes, in the tax year in which the declaration is made. Since you will have retired during or after the calendar year in which you reach age 55, you will owe income taxes on this ordinary income, but no penalty.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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