How to Report an Early TSP Withdrawal to the IRS
In times of national economic crisis, more and more people look to taking money out of retirement plans before retirement. In 2010, hardship distributions hit record numbers. When taking funds out of a Thrift Savings Plan, or TSP, before age 59 1/2, a 10 percent Internal Revenue Service penalty applies. Recording the distribution properly will ensure you pay the right amount of taxes; the income tax on the distribution is not exempt but the penalty may be waived if you qualify for a hardship distribution.
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Instructions
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Take the distribution according to the rules of TSP withdrawals. You must file a distribution form with your TSP administrator, withdrawing a minimum of $1,000 regardless of the reason and actual financial need. If the form allows you to designate a hardship distribution, check the box or write "hardship distribution" next to the withdrawal amount. Hardship exceptions include using funds for a first time home purchase, paying college tuition expenses, preventing foreclosure or eviction, or paying medical bills exceeding 7.5 percent of your annual income.
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Obtain the Form 1099-R sent to you and the IRS by your TSP administrator. This form is sent in January of the year following the distribution; 2010 distributions get the 1099-R in 2011.
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Review the 1099-R information. Box 1 states the gross distribution with the taxable portion listed in 2a. If any taxes were withheld, Box 4 states that amount. Box 7 lists whether this is a normal or early distribution. If the hardship distribution is noted at your TSP administrator, Box 7 should be coded with "2" in the box.
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4
Complete your personal tax returns adding the taxable amount from Box 2a to line 16b of Form 1040. If you paid any taxes in Box 4, list this value in line 61.
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5
Complete IRS Form 5329 to account for the early distribution and calculate any additional tax penalty applied to the early distribution. This form also accounts for the hardship exception if applicable. Note any additional taxes owed based on Form 5329 to line 58 of Form 1040.
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