Leaving Federal Service for Private Sector

Marlon is leaving federal service at age 50, well before the year he reaches age 55.  He will need to be careful if he decides to make a withdrawal from his TSP account before reaching age 59 ½.  

Important Tax Information About Payments From Your TSP Account

• If you receive a TSP distribution before you reach age 59½, in addition to the regular income tax, you may have to pay an early withdrawal penalty tax equal to 10% of any taxable portion of the distribution not transferred or rolled over. The additional 10% tax generally does not apply to: 
• Payments made 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);

Marlon may use one of these other ways to access his TSP account after he stops working if it is before he reaches age 59 ½.  The first option of an annuity and the last option of equal payments over his life expectancy could provide the income that he may need until he is eligible to withdraw periodic withdrawals as needed or a different dollar amount that meets his needs for income.  Of course, if he is over age 59 ½ when he begins to withdraw his funds, he will be able to withdraw using any method including electing a specific dollar amount each month or transferring some or all of his TSP to an IRA.

• annuity payments; 
• automatic enrollment refunds; 
• payments resulting from total and permanent disability;
• payments resulting from death; 
• payments made from a beneficiary participant account; 
• payments made in a year you have deductible medical expenses that exceed 7.5% of your adjusted gross income; 
• payments ordered by a domestic relations court; or 
• substantially equal payments over your life expectancy