How to Withdraw Funds From a Federal Thrift Savings Plan

A Park Ranger, federal employee.
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A Thrift Savings Plan is a tax-deferred retirement savings account. TSPs are available to federal workers and members of the uniformed services. To request a withdrawal, contact the Thrift Savings Plan if you have left federal employment or your agency representative if you are still working. The key to withdrawing TSP funds is choosing the time and distribution method that best fits your needs.

TSP Withdrawal Basics

Internal Revenue Service rules say you should wait until age 59 1/2 before taking money out of a TSP. However, you can start making withdrawals at age 55 if you leave federal government employment. If you make withdrawals before meeting the age requirement, you may have to pay a tax penalty. The IRS requires TSP account holders to start taking out annual required minimum distributions starting no later than April 1 following the year they reach age 70 1/2 .

TSP Distribution Options

There are several ways to arrange for full withdrawal of funds when you reach the TSP retirement age. One option is to take out the entire balance in a lump sum. Alternatively, you can choose to receive monthly payments until the TSP is empty of funds. Monthly payments may be an amount based on your life expectancy, or you can choose a different amount. Another option is to use your TSP money to purchase an annuity that provides a monthly payment for as long as you live.TSP rules allow you to make a one-time partial withdrawal when you leave federal employment or the uniformed services. This option is only available if you haven't taken any age-related withdrawals and must be for at least $1,000. A partial withdrawal lets you get cash immediately upon retirement and defer arranging full withdrawal until a future date.

Taxes on Traditional TSP Funds

The traditional contributions you make to a TSP, along with any matching employer contributions, are pre-tax. All money in the TSP remains tax-free until it is distributed. Withdrawals of traditional TSP funds are taxable for the year of the distribution. You must report withdrawals on your tax return and pay federal and state income taxes. In addition, if you make a withdrawal before meeting the age requirements, you may be charged a 10 percent tax penalty on the early distribution. The IRS waives the penalty tax for certain reasons considered economic hardship, such as medical bills in excess of 7.5 percent of your adjusted gross income, if you become permanently disabled or if a judge orders a distribution as part of a divorce settlement.

Roth TSP Funds and Taxes

You may elect to make all or part of your TSP contributions as after-tax Roth funds. Roth TSP contributions and earnings attributable to them are tax-free when withdrawn provided two conditions are satisfied. You must be 59 1/2 when you take Roth funds out and five years must have passed since the beginning of the year you first made Roth contributions. However, if you withdraw Roth TSP funds early, any earnings portion of the distribution is taxable as income and may be subject to the 10 percent penalty tax. If your employer adds matching funds to Roth TSP contributions, this employer portion is considered traditional TSP money taxable upon withdrawal.

TSP Loan Withdrawals

You can withdraw money from a TSP account temporarily in the form of a loan. Provided you make scheduled payments on time to repay the loan plus interest, the money retains its tax-deferred status. TSP loans may be arranged for up to $50,000. TSP rules recognize two types of loans. You can borrow to pay for a primary residence, in which case you have up to 15 years to repay the full amount. TSP loans made for other reasons must be repaid in one to five years.