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 withdrawal becomes available for active employees at age 591/2. You may make only one age-based withdrawal. Taking such a withdrawal does not affect your eligibility for a later TSP loan or a financial hardship in-service withdrawal. However, it can affect your withdrawal options after you separate. If you choose one, you will not be allowed to make a partial post-separation withdrawal.


You can postpone taxation even if you receive the money directly, by rolling it over into an IRA or other eligible plan within 60 days of receiving it, but you will have to pay tax, including a potential early withdrawal penalty, on the amount that was withheld for federal income tax—even if you roll over the entire amount you received—unless you also deposit personal funds equal to the amount withheld within the 60 days.

If you do not transfer or roll over any or part of your distribution, you may be able to lower the income tax you pay on an in-service withdrawal by income averaging. However, this is available only if your entire account balance is paid to you in one tax year. 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 investedwill come out tax-free, as will its associated earnings if certain conditions are met. Withdrawals will be drawn proportionately from traditional and Roth balances.