Brandon S. Christy, CPA, PFS

Many federal employees are unaware of their TSP withdrawal options during service and while retired. This article aims to clarify any myths you may have heard.

Myth #1: I cannot withdraw any TSP funds until I have retired.

False. You may take a one-time in-service withdrawal at age 59½ or older. You can also take a hardship withdrawal; however, you will not be able to contribute to your TSP for 6 months. You do not have to repay either withdrawal.

Myth #2: I can only take a TSP loan if I am buying a house.

False. In addition to residential loans, TSP also offers general purpose loans. Currently, the bi-weekly payments for the maximum general purpose loan of $50,000 would be $411.00 for 5 years.

Myth #3: The only option for my TSP in retirement is to transfer it into an IRA.

False. Although rolling over your TSP to an IRA or other retirement account is a good choice for many, there are several alternatives. You may leave the funds in your TSP until age 70½ when minimum distributions are required. You may take a partial withdrawal of your funds, unless you have taken an in-service withdrawal. You could also take a full withdrawal. Full withdrawals allow you to take a single payment, monthly payments, or a life annuity.

Myth #4: I should complete a TSP transfer to an IRA at retirement.

Maybe. If you retire in the year you turn 55 or later, you can withdraw funds from your TSP before age 59½ without incurring a 10% penalty. With an IRA, you must be at least 59½ before withdrawing funds, except in a few cases.

There are several ways to withdraw funds from an IRA before reaching age 59½ without incurring the 10% penalty. They include:

• Substantially equal periodic payments or 72(t)
• Death and Disability
• First time home purchase up to $10,000
• Qualified higher education expenses
• Medical expenses exceeding 7.5% of Adjusted Gross Income

Posted 7/17/2011

About the Author

     Brandon S. Christy, CPA, PFS, is the President of Christy Capital Management (CCM) and founder of the Retirement Benefits Institute (RBI).
     RBI has provided benefits and retirement training sessions to thousands of federal employees. A schedule of upcoming training sessions (which are provided at no-cost for federal employees) can be found at: http://www.retireinstitute.com/training.php.
     CCM offers retirement analyses for federal employees, building in financial and tax planning concepts for a comprehensive view of retirement. For a no-cost consultation or other planning needs, contact CCM toll-free at 866-331-7749 or visit http://www.christycapital.com

Disclaimer
The information contained in this article should not be used in any actual transaction without the advice and guidance of a tax or financial professional who is familiar with all the relevant facts. The information contained here is general in nature and is not intended as legal, tax or investment advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals' specific circumstances or needs and may require consideration of other matters.