Retirement & Financial Planning Report

Age 59 ½ is significant in tax-advantaged savings plans such as the Thrift Savings Plan because under the tax code, that generally is the earliest that withdrawals can be made from such plans without incurring the 10 percent “early withdrawal” penalty on investments, and their associated earnings in “traditional” account balances–that is, money that was put in on a pretax basis.

In the TSP, an age-based in-service withdrawal becomes available for active employees at age 59 1/2. Under current policy, you may make only one age-based withdrawal and if you choose one, you will not be allowed to make a partial post-separation withdrawal. That is scheduled to change in September 2019: up to four age-based in-service withdrawals will be allowed per year and unlimited post-separation withdrawals will be allowed.

You can postpone taxation by having the money transferred directly into an IRA or other eligible plan; you also can postpone taxation of money you receive directly through a “roll over” but that is more complex. Money transferred or rolled over under these withdrawals is taxable when drawn out of the IRA or other retirement plan.

If you are a married FERS participant, you must obtain the consent of your spouse before you can receive a TSP in-service withdrawal, regardless of the amount. If you are a married CSRS participant, the TSP must notify your spouse before your withdrawal is approved.

Note: If you also have a Roth balance, the money you invested will come out tax-free, as will its associated earnings if certain conditions are met. Withdrawals will be drawn proportionately from traditional and Roth balances.