TSP Investment Strategy for Retirement
Knowing What Your Pension Will Actually Be
Maximizing Your FERS Supplement
When to Start Social Security
How Your FEHB Changes in Retirement
Maximizing FEGLI
How to Not Lose Your Dental/Vision in Retirement
Do You Need Long Term Care Insurance?
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I am a practicing financial planner, but I’m not your financial planner. Please consult with your own tax, legal and financial advisors for personalized advice….(read more)
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As a federal employee, you may have contributed to the Thrift Savings Plan (TSP), a defined contribution retirement plan available to federal employees. While many employees view their TSP as a long-term savings vehicle, unforeseen financial circumstances may compel them to withdraw from their TSP before retirement age. But can you withdraw from your TSP even if you are still an active federal employee?
The simple answer is yes. Federal employees can withdraw money from their TSP account while they are still employed, provided that they meet certain conditions. There are two types of withdrawals available: ‘in-service’ withdrawals and financial hardship withdrawals.
In-service withdrawals, as the name suggests, permit TSP participants to withdraw money from their account while still employed. However, these withdrawals are subject to certain limitations. Firstly, you can only withdraw money from your ‘traditional’ account, which consists of pre-tax contributions and any associated earnings. You cannot withdraw money from your Roth account, which consists entirely of after-tax contributions. Secondly, you are only allowed one in-service withdrawal per year, although there are no limits to the number of times you can apply for an in-service withdrawal due to financial hardship.
Financial hardship withdrawals are available to TSP participants if they can demonstrate a “financial hardship.” Hardship withdrawals can be granted if the employee requires the funds immediately due to medical expenses, funeral expenses, or the high cost of repairing a home, among other reasons. The maximum amount available for hardship withdrawal is the sum of your contributions, along with any vested agency automatic or matching contributions. However, earning on those contributions cannot be withdrawn under hardship circumstances.
It’s important to note that both types of withdrawals carry significant tax implications. Unless you are over 59.5 years old, your withdrawal will be subject to a 10% early withdrawal penalty in addition to regular income tax. Moreover, any money withdrawn from traditional TSP accounts will be treated as taxable income in the year it is withdrawn.
In conclusion, TSP participants can withdraw money from their account while still employed. For unexpected expenses, financial hardship withdrawals are available. However, it’s important to remember that there are tax implications to withdrawing from your TSP account, and early withdrawals may also incur penalties. It is essential for TSP participants to carefully consider their options and seek guidance from a financial advisor who can help them make an informed decision.
Whoa, backup there guy… TSP stocks are down 20-30% so taking a loan from that pot of money is GOOD.
Another great video!
I really don't see why people spazz out about TSP withdrawal, THATS why you put money into it…why retire and then die…..leaving most of it in there unless you really want to leave it to a charity or a spouse…to spend it. I'll be 59 1/2 this month and I plan to take 400K out and pay off bills and a mortgage…and the 9111 Porsche I just bought. At that age you get 4 per year while you still work.
Hi Dallen.
Can I ask you to create a video about what you would recommend for a recession please?
I haven't touched my TSP even though I'm retired. I picked up contractor gig and I'm wondering what would be smart if we hit a recession in the coming months.
Thanks for all of your videos Dallen!
Good presentation. Might help with a graphic or two on the side of the video.
Don't do it. You are robbing yourself. Plus remember you can only get a loan or a hardship withdrawal of the funds that you have put into the account, not the government contributions (you are limited in the amount, cannot take out as much as you want).
What if you are purchasing your first house? Can you withdraw money from your TSP?
This came right on time!
Excellent content, especially for younger employees. They must understand the consequences of disrupting the compounding aspect of “borrowing” or tapping their TSP for any reason. Many other alternatives may emerge as better options even in the event of a hardship need. TSP is a huge cornerstone in the FERS retirement. I don’t think younger employees fully understand that the onus is on them to save and save consistently to have a healthy retirement lifestyle. 34 year Federal Law Enforcement/Civilian retiree age 55.
Buying a house?
Medical?
Thank you for the answer…