Can I Pull Money From My TSP Early?

The Thrift Savings Plan is essentially an alternative to the 401k for federal employees. Like the 401k plan offered by many private employers, if you are a federal employee, you can opt into the TSP and defer taxes on your contributions and the investments inside the plan until you reach retirement age. It is possible to pull out your TSP money early, but if you do, you may incur an additional tax penalty.

Normal Withdrawals

The purpose of the TSP is to help you save money for retirement and create a source of income for you to live on after you stop working. Once you reach 59 1/2, you can begin taking normal withdrawals. Because the money in your plan is tax deferred, the government taxes your withdrawals as normal income based on your tax bracket. If you take the money in one lump sum, you will pay income tax on the entire amount for the year you took the withdrawal. If you decide to take the money out in payments, the government will tax only the amount you withdrew during the year.

Early Withdrawals and Penalties

You can take money out of your TSP before you reach 59 1/2 to pay for your first home, medical bills and to cover other types of financial need. If you do, you will likely incur penalties. In addition to regular income tax assessed on the amount you withdraw, you will have to pay a 10 percent early withdrawal penalty, unless your withdrawal meets one of the early withdrawal exceptions.

Early Withdrawal Exceptions

If you die before reaching 59 1/2, your spouse or other beneficiaries can avoid the early withdrawal penalty if they take money from your plan. Likewise, if the court orders you to give some or all of your TSP money to your ex-spouse for alimony or child support, you will not incur penalties. If you are at least 55 and you leave your federal job, or if you have medical expenses that amount to more than 7.5 percent of your annual salary during the year you took the money you also will not incur penalties for your withdrawal.

Annuity Payments

You can take an early withdrawal at any age for any reason without penalty if you withdraw your money at regular annual intervals. If you choose to take early payments, you can take a government annuity, which will base your annual withdrawal amount on the amount of money in your plan and your life expectancy, which is determined based on your age and government actuarial tables.

References

• Government Executive; Retirement Planning -- Withdrawal Options; Tammy Flanagan; March 2006
• Thrift Savings Plan: Withdrawals After Leaving Federal Service: Taxes on Your Withdrawal
• Thrift Savings Plan: In-Service Withdrawals: In-Service Withdrawal Basics
• U.S. Office of Personnel Management: Thrift Savings Plan (TSP)