The Best Way to Withdraw TSP Funds

Civilian employees and military personnel who participate in TSP programs have a number of good withdrawal options.
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As a federal employee, you should be aware of the different withdrawal options available to you under your Thrift Savings Plan. Thrift Savings Plans were established for federal employees in 1986, and for military personnel in 2001. The TSP was created to provide federal employees similar retirement benefits to those that non-public sector employees earn through participation in 401(k) plans. Withdrawals can't be reversed, so making a bad choice will reduce the benefits you receive later in life.

Partial Withdrawal

You are allowed to make a one-time partial withdrawal from your TSP account as long as you did not make an age-based in-service withdrawal (applicable to those 59 1/2 and older) while you were still working for the federal government. Remember, you aren't allowed to make a partial withdrawal without your spouse's concurrence. Partial withdrawals must be $1000 or more. This money can be transferred to a traditional IRA, or put to use in your retirement plans. The main drawback to a partial withdrawal is that your TSP account's ability to grow is diminished.

Hardship Withdrawal

Thrift Savings Plan rules allow you to withdraw a single payment from your account to meet emergency needs while you are still actively working for the federal government. This is a serious decision since you can't replace the funds at a later date. Significant early-withdrawal penalties will be subtracted from your account if the money is withdrawn before you reach age 59 ½. You must withdraw at least $1,000, and the withdrawal must be for a verifiable emergency such as medical bills, serious financial loss caused by an accident, or expenses related to a divorce.

Full Withdrawal Options

If you are able to hold off withdrawing until you are ready to retire, you can take the full amount you have in your TSP account in a single lump-sum payment, or you can receive your disbursement in monthly payments. The first monthly payment option is simply for you to specify a monthly payment amount that will pay until your account is exhausted. The Life Expectancy option pays you a monthly payment based on the IRS' Life Expectancy Tables. Full withdrawal is the best way to use the funds you have worked so hard to accumulate.

Annuity Option

Another good option is to have TSP purchase an annuity for you with the funds you have in your account. You can use all or part of your TSP funds to purchase an annuity as long you have $3,500 or more available. Do not confuse this annuity with the basic annuity you will receive as a retired federal employee, or military retired pay. Finally, you can combine all of your full withdrawal options to meet your specific retirement needs. If you are unsure of what the best withdrawal option is for you, seek the advice of a professional investment adviser.

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