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Can I Use My TSP Before 59 and 1/2?
The Thrift Savings Plan (TSP) is a retirement savings vehicle available to federal employees and members of the uniformed services. Like other retirement accounts, it is designed to help individuals accumulate funds to support them during their golden years. However, there are certain restrictions on accessing the funds in the TSP before reaching the age of 59 and 1/2.
Generally, the TSP is intended to be used for retirement purposes and therefore encourages participants to keep their funds invested until they are ready to retire. The age of 59 and 1/2 is considered the standard age at which individuals can start withdrawing from their TSP accounts penalty-free.
However, there are a few exceptions that allow participants to access their TSP funds earlier, without incurring a penalty. The following are some situations in which you may be able to use your TSP before 59 and 1/2:
1. Separation from Service: If you leave federal service or the uniformed services in or after the year you reach age 55, you can take withdrawals from your TSP without being subject to the early withdrawal penalty. Although you will still have to pay taxes on the amount withdrawn, the penalty is waived in this scenario.
2. Age 50 for Public Safety Employees: Public safety employees (such as firefighters, law enforcement officers, and air traffic controllers) who have reached the age of 50 can withdraw funds penalty-free based on their separation from service. This exception allows for earlier access to TSP funds due to the demanding and often physically challenging nature of their professions.
3. Substantially Equal Periodic Payments (SEPP): SEPP is an option available to anyone, regardless of their age or occupation. It allows participants to take distributions from their TSP in the form of substantially equal periodic payments based on their life expectancy or the joint life expectancy of themselves and their designated beneficiary. However, it’s important to note that once you choose this option, you must continue receiving payments for five years or until you reach age 59 and 1/2 (whichever is longer) to avoid penalties.
4. Financial Hardship: Participants facing financial hardship may be eligible to withdraw from their TSP, even before age 59 and 1/2. However, the criteria for hardship withdrawals are stringent and include reasons such as expenses related to medical bills, education expenses, legal fees, or the prevention of eviction or foreclosure. It’s essential to be aware that hardship withdrawals cannot be repaid and may have adverse tax consequences.
5. Qualified Reservist Distribution: If you are a member of the armed forces reserve, you may qualify for this exception. In the case of a reserve call-up or activation for active duty, you may be able to withdraw funds from your TSP without penalty. This exception is typically applicable to those who serve for more than 179 consecutive days.
In summary, while the TSP is primarily designed as a retirement savings account and encourages participants to wait until reaching 59 and 1/2 to access their funds penalty-free, there are certain circumstances and exceptions that allow for earlier withdrawals. Each exception has its own criteria and implications, so it is always recommended to consult with a financial advisor or TSP representative before making any decisions regarding your retirement savings.
I just spoke to TSP. They said that you are incorrect. They said that anyone, no matter when you retire, withdrawing money from TSP before age 59 1/2 will incur a10% penalty? I retired at age 55 and was needing to do a partial withdrawal.
I am 60 now retired. I want to make tsp w/d the representative told
me there is 20% tax. Is that different from the 10% you’re talking about? Please explain. Thanks
What if I do a ‘postponed retirement’ at age 57, but don’t start annuity until 60 or 62? Can I get to me TSP at 57 then, without penalty?
I'm 55 and retiring December 2024 from Postal Service. Can I transfer my Roth somewhere so I can use the money before 59 1/2?
But you can't touch tap Roth until 59 1/2
What happens if you retire at one of those tax free states (Wyoming or Texas) do you still pay taxes?
Question, would be good for video answer..if fers 57 yr old retiree and want to incrementally transfer traditional tsp to ira and roth convert, is the traditional ira transfer subject to penalty when i convert to roth pre 59.5? Also what are the roth conversion 5 year rules
Excellent video as usual. So many federal employees have this exact question.
Do they split hairs on the actual date you retire vs. the time of withdrawal? I my case, I'm 56 and will retire in 60 days, yet I would like to take a withdrawal now to pay off my remaining debt. Must I wait until after I'm officially separated to avoid the penalty or am I good?
Can you touch on the fact that the TSP now has expense ratios that are an upwards of THREE TIMES more expensive than their private sector counterparts for quite literally no reason? I have seen many letters penned trying to fight to reverse this, as the TSP used to be the low cost leader. They are now not even remotely competitive. It is frankly upsetting as every other major broker right now is offering the same low cost index fund options for incredibly low (in some cases zero) expense ratios. How are they incentivizing people to stay in the TSP like this?
Tsp 72t
Special provisions air traffic controller here. If I retire in the year that I turned 50, does that mean I can also access my Roth TSP?
So retiring from USPS end of August 2024. I will be 58, so if I want to make a withdrawal. Do I have to make it that same year? Or can I do it after 2024 if needed. Without 10 percent penalty.
You can avoid the 10% early withdrawal penalty using annuities as well at any age under current TSP rules. For example, I will be 50 with 21 years of service. Current rates for annuities mean it takes 985k tsp to get a lifetime 60k annuity a year for life as 50 year old. I plan to get at least that much but likely more, with over 66% being roth. This will make healthcare also free or at least super cheap, and will be in the 0% tax bracket or close by when i retire. Ages 50 to 60 will be only that 60k, then at age 60 fers kicks in as i have over 20 but less than 30, mine will be around 29k, so from 60 to 67 have 89k income, while in 12% tax bracket as half is still roth. Then at 67 you toss on SS so another 33k or so. 120k+, half having cola, from 67 til death. While i normally would not consider an annuity, being able to avoid the 10% fee for retiring 9.5 years early, makes really it stand out as a viable option. My plan is close to tax free, makes healthcare free or nearly free, is all garanteed income. I may change it as needed as laws can change as well as the market, but im not seeing anything better after a lot of research about retiring early. I am a super saver and have been maxing out my tsp for years, currently at a 36+% savings rate to make this viable, as well as living well below my means, to buy back a decade of my life.
There is an exception, or there was when I retired as a Postal Clerk. I took an early out that was offered in 2018, with nearly 31 years in, at age 50. I turned 51 the month after I retired. I have been receiving money from my TSP since late 2018, without the 10% penalty. It's a withdrawal option based on Life Expectancy, which allows me to receive a certain amount every month. But if I were to change that option BEFORE I turn 59 1/2, I would have to pay the 10% penalty retroactive back to when I first started taking money out. I do pay regular taxes on it, but I had to tell them to take those out, based on my tax guy. Don't take my word for it, but it's something worth looking into, especially if you're already retired and younger than either the 55 or the 59 1/2.
One of the benefits touted about the TSP is the low fees. I'd be interested in a video where you explain the fees associated with TSP in comparison to something managed outside the gov't like a traditional IRA, just for example.
Keep in mind that the rule is (in the year) very important language. If you separate from regular fers at 54 in January and that same year your birthday is in October and you'll be 55 you don't pay the 10%.
How about you quit, does the 55 year rule apply?