Your Thrift Savings Plan is an important part of your overall retirement strategy. Along with Social Security payments and your annuity payments, withdrawals from your TSP will allow for some additional income in retirement. Plus, while your Social Security and annuity payments will depend upon factors (such as length of employment) that are fairly set in stone, the amount of money in your TSP can vary according to your decisions regarding the fund. This gives you a certain degree of control over your eventual retirement income.
Since your TSP is a form of investment account, it follows many rules that apply to other types of retirement or investment funds. For example, we usually say that it is best to leave your money in a retirement account as long as possible, to allow it to grow. Compounding interest makes a big difference over time, and withdrawing your money early can cost you in the long run.
But in some cases, you need or want to retire early and avoid the usual penalties that come with early withdrawal from your retirement account.
One way to do this is by implementing IRS code 72-T, which allows you to retire with no minimum age restriction and access the money in your TSP. Obviously, there are some rules that apply and it is best for you to discuss them with an experienced financial professional who is familiar with this process. (We do this quite often with clients.)
The other way you can actually access your TSP funds without triggering any sort of penalty is at age 55. What’s the catch? You have to retire from federal service before taking that penalty-free withdrawal.
For Public Safety employees, the rules can be even more loose: You just have to be retired from federal service, period. There is no minimum age requirement to access your TSP funds.
Still, it might make sense to leave your money in the fund as long as you can wait. That’s because with many people living well into their 80s or longer, retirement can last a long time. Allowing that money to grow is almost always a good plan. Call us to schedule an appointment, and we can help you decide upon a withdrawal schedule.