• Negative monthly cash flow

• Medical expenses that you have not paid and that are not covered by insurance

• Personal casualty loss(es) that you have not paid and are not covered by insurance

• Legal expenses (that you have not yet paid) for separation from your spouse or divorce

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To qualify and take money out of the TSP early on a financial hardship basis comes with several significant considerations.  For six (6) months after receiving a financial hardship in-service withdrawal from the TSP, an employee is not allowed to make contributions to the TSP and is not eligible to receive matching contributions from their agency.  An employee that takes money out of the TSP early on a financial hardship basis also is subject to federal income taxes and the 10% early withdrawal penalty.  Of particular note, when an employee takes money out of the TSP early for a financial hardship in-service withdrawal, they do so under penalty of perjury.

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An employee would complete Form TSP-76 Financial Hardship In-Service Withdrawal Request to take money out of the TSP early on a financial hardship basis.

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Any employee age 59½ or older that has a vested balance over $1,000 can take money out of the TSP early under allowable provisions of the Thrift Saving Plan known as an Age-based In-Service Withdrawal.  Such provisions, while not widely known, exist with the TSP and other retirement plans.

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Taking money out of the TSP early, when processed as an age-based in-service withdrawal, is IRS penalty-free and funds maintain their tax-deferred status when funds are disbursed into an Individual Retirement Account (IRA) or other qualified plan.  An age-based in-service distribution may allow you to protect the income potential of your retirement funds, and provide growth opportunity while you continue to work. 

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If funds are dispersed directly to the employee in the form of a check or deposited directly into a checking or savings account via electronic funds transfer (EFT), they are subject to federal and, if applicable, state income taxes.  (Advice: avoid doing this)

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The TSP offers only five (5) single options (G Fund, F Fund, C Funds, S Fund and I Fund) and the L Funds are comprised of various combinations of the five previously mentioned options.  Taking money out of the TSP early using the age-based in-service withdrawal option and transferring (rolling over) to an IRA provides these advantages:

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• Provides you more control

• A greater selection of options to fund your retirement

• Access to professional investment advice and/or guidance

• Access to options that may provide lifetime retirement income while still employed

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The primary disadvantage of an age-based in-service withdrawal as a means of taking money out of the TSP early include higher fees than fees in the TSP.  With the majority of all TSP assets being invested in the G Fund, the argument could be made that the access to professional advice and guidance could provide recommendations that have the potential to provide greater returns than recent G Fund performance, offsetting the advantage lower fees of the TSP.

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An employee would complete Form TSP-75 Age-Based In-Service Withdrawal Request to take money out of the TSP early as an in-service withdrawal.

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A Chartered Federal Employee Benefits Consultantsm is a financial planning professional who has been specially trained on the complexities associated with the retirement and other benefits offered to the employees of the federal government.  To learn more about whether taking out money from the TSP early is in your best interest, please contact Jones Wealth Management Group at 901-312-9166 and schedule a no-cost, phone or in-person consultation.  Jones Wealth Management Group does not provide tax advice.  Please consult your tax professional as it pertains to your situation.  As always the final decision is always the client’s.  This information should not be used as a basis for tax advice. In any specific case, the parties involved should seek the guidance and advice of their own tax counsel.

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Source: www.tsp.gov

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