Member Benefits: TSP Withdrawals
Thursday, December 09, 2010
Retirements which occur in the year in which the member is age 55 allows penalty-free access to their TSP account no matter which withdrawal method they elect.
Retirements occurring prior to the year in which the member attains age 55, withdrawal is restricted to actuarially projected lifetime payments or a true annuity. These are referred to as the IRS 72T distribution rules, meaning that the amount of the payment will be based on account balance and age. The member cannot dictate the amount they will receive. Further, the payments must be continued until the later of five full years or age 59 ½. Otherwise the member will be hit with the 10 percent penalty on all amounts that they received.
No matter what age the member is at retirement, as long as they comply with the IRS 72T distribution rules, they will receive a 1099R. Box 7 should be coded "2."
"Use Code 2 only if the employee/taxpayer has not reached age 59 ½ and the distribution is:
- A distribution from a qualified retirement plan after separation from service in or after the year the taxpayer has reached age 55, or
- Any other distribution subject to an exception under section 72T."
If the 1099 box 7 is not properly coded the member must file a Form 5329 with their tax return.