Tapping TSP before age 59 1/2

Q: I have $100,000 in my Thrift Sav­ings Plan (TSP) account. I retired 10/1/10. I have to pay taxes on this money when­ever I take it out. Is there a way to take out $20,000 in 2011 and leave the remain­ing $80,000 to work for me somewhere?


–Paul, Oswego, N.Y.

A:  Remem­ber that the TSP is a retire­ment account. So, unless you’re 59 ½ or retired at 55 or older you can­not access the money with­out pay­ing income taxes plus an addi­tional 10% penalty. My guess is that since you just retired you’re not old enough to tap the TSP with­out both taxes and penal­ties. With that in mind, what prob­a­bly makes the most sense is to leave the money in the TSP or estab­lish an IRA and rollover your TSP into the IRA. A rollover like this will not trig­ger any taxes if you move the money directly from the TSP to your new IRA account via a direct rollover (you don’t get a check, it just goes from the TSP to the new cus­to­dian). Once you get the IRA set up, you can invest the money in a suit­able man­ner and could, sub­ject to taxes and penal­ties, access the money when­ever you desire. If you leave the money in the TSP, the rules for access­ing your invest­ments are a bit more con­vo­luted. In fact, you can only take a par­tial with­drawal from the TSP one time; oth­er­wise you’re forced to make a full with­drawal or a take a series of monthly pay­ments. Here’s a link to a pub­li­ca­tion on the topic.

A note to our other read­ers: you can “bor­row” from the TSP bal­ance while still in the ser­vice, but not once retired or separated.

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6 responses to “Tapping TSP before age 59 1/2”

  1. It’s only about 3.5% on a loan.… take 20k on a loan.… :)

    1. CPT B — Once one retires, no loans are allowed from a retire­ment plan. Paul retired in 2010.

  2. I’ve been in for 8 years. What if i needed the money from my TSP before i sep­a­rate? Can i do a rollover into an IRA? And if so, what would the penal­ties be after 8 years?

  3. Kal — Since you are still in the ser­vice, you can bor­row funds from your TSP. The interst rate is rel­a­tively low, and you have the option to pay the loan back over a five year period. Keep in mind that if you sep­a­rate from the ser­vice before the funds are paid back, the remain­ing bal­ance will be con­sid­ered a dis­tri­b­u­tion and you will be taxed and penal­ized accord­ingly. Hav­ing said that , a loan may be the way to go if you have no other options. See tsp​.gov for the amount of loan ava­ial­ble to you, the cur­rent inter­est rate and the repay­ment terms.

  4. My hus­band is 65, is his mil­i­tary retire­ment pay taxed with a 10% penalty?

    1. Sherry…There should be no penalty for mil­i­tary retire­ment pay.

USAA or its affiliates do not provide tax advice. Taxpayers should seek advice based upon their own particular circumstances from an independent tax advisor. The information is provided for informational purposes only and is not intended to substitute for obtaining professional financial advice. Please thoroughly research and seek professional representation before acting on any information you may have found in this article. This article is in no way attempts to provide advice that relates all personal circumstances.

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