“Is there a 10% penalty for signing up for $1,250 monthly straight withdrawal (not an annuity) from the TSP if I retire at my MRA @ 56 (but will not be 59 1/2)” – Paul.
The Thrift Savings Plan (TSP ) is an important component in your retirement planning. When it comes to making contributions to the TSP, as a Federal Employee, it is rather straightforward.
While a phenomenal accumulation tool, the TSP Withdrawal Penalties are different than investments in the private sector.
As a Federal Employee, it is important for you to understand some of the rules and planning techniques involved in making withdrawals or distributions so that you do not incur TSP Withdrawal Penalties.
In this question, Paul is asking about retiring at his Minimum Retirement Age. As a Federal Employee, your MRA determines your eligibility for a full, unreduced retirement pension. There are several parameters when it comes to determining your pension benefits. For example, under FERS, employees are eligible at age 62 with five years of service, 60 with 20, MRA with 30 or MRA with 10 – but with a reduced benefit.
When you retire at MRA and 30 years of Creditable Service, you potentially have three resources. These are your Pension, your FERS Supplement, and your TSP without a penalty.
If you are age 55 or older when you separate from service, you can take withdrawals from your TSP without penalties. The key concept here is that in order to not have penalties you have to be age 55+ and be separating from service.
If you are Special Provisions which includes Law Enforcement, Air Traffic Control, and Firefighters, you have a different age. For those who are special provisions, the age is 50 to make penalty-free withdrawals when you separate from service.
Remember, the Thrift Savings Plan is different than an investment vehicle in the private sector, like an Individual Retirement Account.
The TSP has different withdrawal features than the private sector so it is important to understand the difference. TSP Withdrawal Penalties are based on your age and separation from service.
If you transfer the money from your Thrift Savings Plan to your Individual Retirement Account and go to make a distribution, you may incur the 10% penalty for having done so before reaching age 59 1/2.
In Paul’s question, he wanted to make a withdrawal from this TSP at age 56. Providing that Paul had achieved his MRA and 30 years of creditable service, he would be permitted to do so from this TSP account.
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Get the most out of your federal retirement benefits by taking advantage of the FERS resources created by Micah Shilanski, CFP®, and the team of independent financial advisors at Shilanski & Associates, Inc. Join the thousands of federal employees who trust us to guide them in their retirement planning journey because of our unique perspective of how your FERS benefits contribute to your comprehensive financial plan.
Year after year I see Federal Employees missing the same critical concepts in their federal retirement planning. That’s why I’ve created an online workshop to help educate Federal Employees on these critical concepts.
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