Usually, thrift savings plans, or TSPs, shouldn't be withdrawn until you reach retirement because of the early withdrawal penalties that apply if you're under 59 1/2 years old. However, if you're starting a business and need funds, you might take a distribution from your TSP just to make ends meet. Taking a TSP distribution because of business expenses doesn't qualify for an exemption, so you'll have to pay an extra 10 percent penalty on the taxable portion of the distribution.
Report the taxable portion of the TSP distribution on line 16b of Form 1040. The taxable portion of the distribution is reported in box 2a of Form 1099-R. This amount adds to your taxable income for the year.
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Report the entire TSP distribution as a non-taxable pension and annuity distribution on line 16a of Form 1040 if any of the distribution is non-taxable. The total amount of your TSP distribution is found in box 1 of your Form 1099-R. If all of the distribution is taxable, do not report any amount on line 16a.
Include any federal income tax withholding, found in box 4 of your Form 1099-R, in your income taxes withheld on line 62 of Form 1040.
Complete Form 5329 to figure your early withdrawal penalty if you are under 59 1/2 years old when you take the distribution. For example, if you are 40 and $6,000 of your distribution is taxable, you'll owe a $600 penalty. Report the penalty you owe on line 58 of Form 1040.
Things You'll Need
IRS Form 1099-R
IRS Form 1040
IRS Form 5329