Retirement & Financial Planning Report

The Thrift Savings Plan allows actively employed participants to make an age-based withdrawal at age 59 1/2 or higher. This was structured so that these withdrawals would be exempt from early withdrawal penalties generally applying below that age to participants in tax-deferred plans such as the TSP.

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 the partial post-separation withdrawal.

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The option might be valuable if you need to fill a need for a lump sum of money before retirement or separation and you might not be able to wait that extra time, however short it may be. And at that rather advanced point in a working career, you may not wish to pay the money back into your account, as taking out a TSP loan would require.

The age-based withdrawal also effectively is a way to design a mixed withdrawal, by taking out part of the account as a lump sum and leaving the rest in to be withdrawn after retirement or separation in the manner of your choosing.

There is an option to roll over the age-based withdrawal to an IRA or other qualified plan. If you wish to have greater choice in investments than the TSP offers, this is one way to accomplish it. You might also simply want to begin consolidating your retirement investments late in your career.

Or, your need may be such that you need immediate access to the money. An age-based withdrawal is taxed as income to you, and that tax rate probably will be higher while you’re still actively employed than if you waited until after retirement and took a similar amount as a lump sum withdrawal. However, the in-service withdrawal at least is not subject to an early withdrawal penalty, as is a hardship-based withdrawal taken before that age.

You might want to consider a loan instead. This has the advantage of allowing you to rebuild your account before separation or retirement by paying back the money through loan payments. However, if you don’t wish to rebuild your account or don’t think you’ll be able to afford to, an age-based withdrawal could be a better option than a loan.