Can I use my retirement money early without penalty?

Q: I can’t seem to find a defin­i­tive answer to this ques­tion, so I hope you can help. If my husband’s TSP account has both tra­di­tional and Roth funds in it, will he be eli­gi­ble to do a 72(t) when he retires at age 53, or will the money be untouch­able until age 59–1/2? Addi­tion­ally, can I do a 72(t) on my Roth IRA before age 59–1/2 with­out penalty or owing taxes on earn­ings? Thank you!

–Anjali, Vir­ginia Beach, Virginia


A: Well, let me give it a shot. You didn’t ask, but my con­cern when read­ing your ques­tion was, “Are you really finan­cially ready to retire?” You may be in great posi­tion, but all this dis­cus­sion tap­ping retire­ment plan/IRA invest­ments early has alarm bells going off in the back of my head. So, here’s my first piece of advice: Do some seri­ous finan­cial plan­ning with the help of a fee-only finan­cial plan­ner. He or she should help you assess your plan, make any nec­es­sary adjust­ments and coor­di­nate with other pro­fes­sion­als that may have valu­able input; in your case an accoun­tant may pro­vide some use­ful advice. My main thought is sim­ply to look closely before you leap!

Access­ing the TSP

Your husband’s entire TSP could be set up for sub­stan­tially equal pay­ments over his life­time. When doing so, the Roth and tra­di­tional com­po­nents would be paid out pro­por­tion­ately and the pay­ments would not be sub­ject to the addi­tional 10% penalty. How­ever, any earn­ings on the Roth with­drawals that are dis­trib­uted would be sub­ject to ordi­nary income tax. The form you use to make TSP with­drawals offers the option for a full with­drawal com­puted based on his life expectancy. Your hus­band would have to con­tinue the life expectancy with­drawals until at least age 59 ½ in order to avoid penalties.

Tap­ping the Roth IRA

The abil­ity to make a series of sub­stan­tially equal peri­odic pay­ments over your life expectancy and avoid the 10% pre­ma­ture dis­tri­b­u­tion is cov­ered under Sec­tion 72(t) of the IRS code. To qual­ify, you have to make and con­tinue the dis­tri­b­u­tions for the longer of five years or attain­ment of age 59 ½.  You could do this with Roth IRA earn­ings (your con­tri­bu­tions would come out first and with­out taxes or penal­ties) and it could allow you to avoid the 10% penalty on those earn­ings; how­ever it would not allow you to receive the tax free treat­ment on the Roth IRA earn­ings that you would nor­mally receive at age 59 ½. 

In the end, if you decide it makes sense, you’ll def­i­nitely be able to access your retire­ment sav­ings, but you may not get all the ben­e­fi­cial tax treat­ment you could have enjoyed later. The key is to make sure that you have a solid game plan that works for you over the long haul. Good luck!



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Scott Halliwell and JJ Montanaro are CERTIFIED FINANCIAL PLANNER™ practitioners with USAA Financial Planning Services, one of the USAA family of companies. Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP® and Certified Financial Planner™ in the United States, which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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