Guidance Issued on TSP Taxation Change

The TSP has issued guidance on a law enacted this year (P.L. 114-26) allowing certain federal law enforcement officers, customs and border protection officers, federal firefighters, and air traffic controllers who separate from service in or after the year they turn age 50 to make a withdrawal from the TSP without incurring a 10 percent early withdrawal penalty. The law applies to TSP withdrawals paid in calendar year 2016 and after, it said, and the TSP will rely on employing agencies to notify it if a separating (or already separated) employee was a public safety employee as defined by the law. Employees with this designation who were at least 50 during the year of separation and who are paid withdrawals after this year will be issued a Form 1099-R–in January of the year following the withdrawals–indicating they are exempt from the IRS 10 percent early withdrawal penalty. Other employees will continue to be exempt only if they separate in the year they turn 55 or older or have reached the age of 59½.