Over a ten, twenty, or thirty-year career, a FERS employee can contribute a significant amount of funds toward the Thrift Savings Plan (TSP). This government-sponsored program allows a federal employee to potentially create a sizable retirement nest egg for the time when one transitions into a retiree. FERS employees who contribute at least 5% of their own salary even receive a government match of 5%. Through our trainings and conversations with federal employees, we commonly get asked, “When can I begin making TSP withdrawals?” As with so many areas, the answer is, “It depends.” Since no one seems to like that response very much, we’ve taken the time to outline a few of the “it depends” scenarios below.
The Importance of 59.5
Before we make our way to the several exceptions, let’s begin with the general rule. Upon reaching age 59.5, whether working or retired, funds can generally be accessed penalty free. Federal employees ages 59.5 or older can take up to four age-based partial withdrawals per year. While working, if you try to make TSP withdrawals from either your traditional or Roth TSP before 59.5, you will likely be subject to a 10% early withdrawal penalty. However, there are essentially two ways federal employees can access TSP funds before age 59.5.
- Financial hardship withdrawal: A financial hardship withdrawal is an in-service withdrawal from TSP, but it has a few key stipulations. These rules include: you cannot take a withdrawal for less than $1,000; your withdrawal must be used for a genuine financial hardship (as defined by TSP); and you cannot make another financial hardship withdrawal for six months after your first one.
- TSP loan: TSP loans allow federal employees to borrow from their TSP account and repay the loan with interest. There are two types of loans available from TSP: general purpose and residential. A general purpose loan is to be repaid in up to five years; however, a residential loan has a repayment period of up to fifteen years. Residential loans — as the name implies — are only given to purchase a primary residence and do require documentation.
Your financial hardship withdrawal may be subject to tax and even an early withdrawal penalty in certain scenarios. See TSP.gov’s Important Tax Information About Payments From Your TSP Account for more on financial hardship withdrawals.
Like with financial hardship withdrawals, there are several other important factors to consider when contemplating a TSP loan. See What You Need to Know About TSP Loans for more on this subject.
The Importance of Age 55
Keep in mind that the above stipulations applied to individuals still working for the federal government. If you retire during or after the year in which you turn 55, you are generally able to access your TSP penalty free. Special Provisions employees (Law Enforcement Officers, Firefighters, Air Traffic Control, and Customs and Border Patrol Officers) can access TSP funds if they retire during or after the year in which they turn 50.
After federal retirement, you can take multiple post-separation partial TSP withdrawals, up to one every thirty days. These withdrawals can come from your Roth funds, traditional balance, or some combination of the two.
For more on accessing TSP funds, see our video: TSP Withdrawals While Employed Vs Retirement.
As with any time you withdraw money from a retirement account, there are numerous tax implications to consider. Each case is different and limits our ability to give one universal answer. Though our “it depends” answer can seem vague, it’s the answer we give because no two cases are exactly the same. We hope that the stipulations listed above provide some clarity for you.