Q. I retired from my dual-status job on Dec. 31, 2018, at the age of 53 in Mississippi, which is below my minimum retirement age. Am I able to collect from my TSP plan without paying a penalty since I am under my MRA? What are the laws that govern this for my CPA to use at tax time?
A. If you receive a TSP distribution before you reach age 59 ½, in addition to the regular income tax, you may have to pay an early withdrawal penalty tax equal to 10 percent of any taxable portion of the distribution not transferred or rolled over. The additional 10 percent tax generally does not apply to payments that are:
- Paid after you separate from service during or after the year you reach age 55 (or the year you reach age 50 if you are a public safety employee as defined in section 72(t)(10)(B)(ii) of the Internal Revenue Code);
- Annuity payments;
- Automatic enrollment refunds;
- Made as a result of total and permanent disability;
- Made because of death;
- Made from a beneficiary participant account;
- Made in a year you have deductible medical expenses that exceed 10 percent of your adjusted gross income (7.5 percent if you or your spouse is 65 or over);
- Ordered by a domestic relations court; or
- Paid as substantially equal payments over your life expectancy.
This penalty never applies to contributions you made to your Roth balance or to qualified distributions of Roth earnings. It may apply to nonqualified Roth distributions.
The penalty tax does not apply to any portion of a TSP distribution (including a loan) that represents tax-exempt contributions from pay earned in a combat zone. If you are a reservist called to duty for more than 179 days, you may be eligible for relief from the 10% early withdrawal penalty, provided that you received your TSP distribution between the date of the order or call and the close of the active duty period. You may also be eligible to repay the distribution to an IRA (not to the TSP).