The Thrfit Savings Plan is a long-term retirement savings plan that provides special tax advantages.  Limitations on in-service withdrawals help ensure that retirement savings will be used for their intended purpose.  Therefore, TSP participants who are still employed by the federal Government, including those employees in nonpay status, are limited to the following two types of in-service withdrawals:

• Age-based in-service withdrawals for participants who are 59½ or older.
• Financial hardship in-service withdrawals for participants who can certify that they have a financial hardship.

When you make an in-service withdrawal, you cannot return or repay the money you remove from your account, so you permanently deplete your retirement savings and future earnings on the amount withdrawn.  If you are in pay status, before making an in-service withdrawal, you should evaluate your options to see if a TSP loan would be more beneficial.  (See Thrift Savings Plan Loan Program)  If you have an outstanding TSP loan, making an in-service withdrawal will not eliminate the requirement to make loan payments.

Age-based withdrawals 

While you are employed by the federal Government, you can make a one-time-only withdrawal of all or any portion of your vested account balance if you are 59½ or older.  Your request must be for at least $1,000 or for your entire vested account balance (even, if your balance is less than $1,000).

If you make an age-based withdrawal from your account, you will not be eligible for a partial withdrawal from that account after you separate from service. 

Financial hardship withdrawals 

While you are employed by the federal Government, you may be able to withdraw your own contributions and earnings for a financial hardship.  The amount of the financial hardship withdrawal is limited to your financial need.  You cannot withdraw less than $1,000.

To be eligible for a financial hardship withdrawal, your financial need must result from at least one of the following four conditions:  negative monthly cash flow, medical expenses (including household improvements needed for medical care), personal casualty losses, or legal expenses for separation or divorce.

To help you determine whether you have a negative monthly cash flow and the amount of the negative monthly cash flow, you can complete the worksheet that is provided with the Financial Hardship Withdrawal Request (Form TSP-76).  To complete the worksheet, you will have to use financial information for yourself and, if you are married, your spouse.  You will have to determine your monthly income (i.e., from employment, child support, and alimony) and expenses (i.e., housing, utilities, dependent care, alimony and child support, and installment loan payments for loans other than TSP loans).  The worksheet also provides factors to determine an allowance for ordinary household expenses based on income and family size.  The allowance takes into account items such as food, clothing, health insurance premiums, entertainment, and other miscellaneous expenses.  (Credit card payments are included in this allowance so they cannot be used in determining expenses.)  You do not have to return the worksheet with your request for a financial hardship withdrawal.

Although you will not have to provide either income information or documentation to substantiate the financial hardship, you should retain this information and documentation for future reference because you will have to certify on the Form TSP-76, under penalty of perjury, that you have a genuine financial hardship and what the reason for the financial hardship is.

After making a financial hardship withdrawal, you cannot contribute to your TSP account for 6 months.  If you are a FERS participant, you will not receive any Agency Matching Contributions for the period which you are not making employee contributions; however, you will continue to receive Agency Automatic (1%) Contributions.  At the end of the 6-month period, your contributions will not resume automatically.  You must make a contribution election on Form TSP-1 (or your agency's electronic version) and file it with your agency if you want to resume contributions.  Your contributions will then be allocated according to your most recent contribution allocation.  You are eligible to request another financial hardship withdrawal 6 months after your previous one.

The cost of making a financial hardship in-service withdrawal

The cost of making a financial hardship in-service withdrawal is significant.  For example, you permanently deplete your retirement savings by the amount of your withdrawal plus any earnings you could have received on that amount -- thus reducing your future retirement income.  In addition, your withdrawal is subject to federal income tax and, if you are less than age 59 ½ when you make your withdrawal, most likely an early withdrawal penalty tax.  These costs are in addition to the cost of not being able to contribute to your TSP account for 6 months after your financial hardship in-service withdrawal is made.  If you are a FERS employee, this means that you will also not receive any matching contributions for that 6-month period during which you are not making employee contributions.  These are contributions that can never be recaptured for your future retirement needs.

You should consider these costs before making a financial hardship in-service withdrawal, and, if you are in pay status and are eligible for a TSP loan, you may want to consider taking a loan instead.

Do spouses' rights affect in-service withdrawals? 

Yes.  If you are a married FERS participant, your spouse must consent to your in-service withdrawal.  If you are a married CSRS participant, the TSP must notify your spouse before the in-service withdrawal can be made.  (See" Spouses' Rights.")   These rights apply even if you are legally separated from your spouse.

How to request an in-service withdrawal

Before you apply for an in-service withdrawal, read the booklet TSP In-Service Withdrawals.   Use the Account Access section of this Web site or complete Form TSP-75, Age-Based In-Service Withdrawal Request, or Form TSP-76, Financial Hardship In-Service Withdrawal Request (depending on the type of withdrawal you are requesting).  Both forms are available from the TSP website (tsp.gov).

If you have a pending application for another in-service withdrawal, or for a TSP loan at the time your request is received, your request will not be accepted.  Only one request for an in-service withdrawal or a loan is permitted at a time.

If you want to transfer all or any portion of an age-based in-service withdrawal to a traditional IRA or eligible employer plan, have your IRA or plan complete the appropriate section of Form TSP-75.  Financial hardship in-service withdrawals are not eligible to be transferred.

Taxation of an in-service withdrawal 

Age-based in-service withdrawal payments are considered "eligible rollover distributions"  for federal income tax purposes and, as such, are subject to mandatory 20 percent Federal income tax withholding.  However, you can avoid withholding on all or any portion of an age-based in-service withdrawal payment by transferring the payment directly to a traditional IRA or eligible employer plan. 

A financial hardship in-service withdrawal is considered a non-periodic payment for federal income tax purposes.  The TSP will withhold ten percent for Federal income tax from such a payment unless you submit IRS Form W-4P, Withholding Certificate for Pension or Annuity Payments, requesting a different amount of withholding or a waiver of withholding.  (Form W-4P must be submitted to the TSP with your in-service withdrawal request.)  In addition, if you make a financial hardship in-service withdrawal before age 59½, you may be subject to a 10 percent early withdrawal penalty tax.  This penalty tax is in addition to the ordinary income tax you will have to pay.  Financial hardship in-service withdrawals are not eligible to be transferred.