financial planner Stephen Zelcer

Q&A – Accessing your TSP at age 55

Accessing your TSP at age 55

Q&A - Accessing your TSP at age 55

Question

Stephen,

I was in one of your classes earlier this year and have a question if that is OK. I am retiring the end of December just over MRA at 57. I have 33 years of service. I plan to take the Social Security Supplement. It was my understanding that I can take withdrawals from my TSP before 59 ½ without penalty. At 59 ½ I had planned to roll part or all of the TSP to an IRA.

I just received some additional information:

My tax adviser said that I would have to file a specific form to allow that to happen without penalty before 59 ½. Basically, I would have to decide what my monthly withdrawals would be for the next 5 years and they would be locked-in with out being able to change for the full 5 years. Is this accurate?
Another financial person mentioned that I would not be able to transfer any of my TSP to an IRA till after the 5 years. Is this accurate?

Also, does accessing my TSP after I retire at MRA have any affect on my FEHB, FERS Supplement, Pension?

Any guidance would be much appreciated.

Thank You,

Answer

Let me address your 3 questions in order:
My tax adviser said that I would have to file a specific form to allow that to happen without penalty before 59 ½. Basically, I would have to decide what my monthly withdrawals would be for the next 5 years and they would be locked-in with out being able to change for the full 5 years. Is this accurate?

Nope, this is not accurate. He is probably thinking of Rule 72(t), but you don’t need 72(t) if you withdraw from an employer plan at age 55 or later (sometimes referred to as “the age 55 rule.”) See Here: https://www.irs.gov/taxtopics/tc558

The following additional exceptions apply only to distributions from a qualified retirement plan other than an IRA:

Distributions made to you after you separated from service with your employer if the separation occurred in or after the year you reached age 55,
Please note – If you have any money in the Roth TSP, accessing the growth of this Roth before 59.5 will be taxable. See here: https://www.tsp.gov/publications/tsp-536.pdf

◆ Qualified Distribution Defined

If a distribution is “qualified,” it means your Roth earnings are distributed tax-free. For a distribution to be qualified, BOTH of these statements must be true: 1. Five years have passed since January 1 of the first year you made Roth contributions to your TSP account. 2. You are 59 ½ years of age or older OR you have a permanent disability1 OR you have died. (In case of death, the 5-year requirement remains the same; your beneficiary does not have to wait an additional 5 years for a withdrawal to be considered qualified.) If either requirement has not been met at the time of your withdrawal, then the distribution is not qualified.

Another financial person mentioned that I would not be able to transfer any of my TSP to an IRA till after the 5 years. Is this accurate?

Nope, not accurate. You can transfer/rollover right after you separate based on the age 55 rule. You don’t have to wait 5 years.

Does accessing my TSP after I retire at MRA have any affect on my FEHB, FERS Supplement, Pension?

Nope, none of those are affected by TSP distributions.

Thanks,

Stephen

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