TSP Withdrawl

[Snarg]

Due to budgetary constraints, in the very near future I will need to withdraw my entire TSP savings as one lump payment. I have done a bit of reading and research and would like to verify what it is I have found.

According to the TSP website, I will be hit with a 10% penalty right off the bat. It seems I will also pay 20% in taxes up front, for a total loss of 30%.

I have a few questions:

1) Does the 30% total sound right?
2) Is the 20% taxes taken out before or after the 10% penalty?

Thank you for your time and I am looking forward to your responses.

 

[nnuut]

Snarg, I think it would make sense that they take out the 20% Federal Taxes after the 10% penalty, because you are taxed on the amount you withdraw and receive. You will also have to pay State taxes, they don't pay that and if you wait until the end of the year you get a penalty for not having enough state taxes taken out during the year. That's just logic so take it for what it's worth.
Best of luck, leave it in if you can that's a big hit!!
Norman:worried:

 

[JimmyJoe]

Can you get a home equity loan? Wait till you retire and receive 3k or 4k a month from your TSP to live on and slowly pay off the equity loan? Taking a loan from your TSP typically is not good money management. I don't know your situation however. Good luck.

 

[Birchtree]

You can get your 10% penalty back when you file your tax return - there is a place on the front side of a 1040 form to take back the penalty.

 

[Snarg]

Snarg, I think it would make sense that they take out the 20% Federal Taxes after the 10% penalty, because you are taxed on the amount you withdraw and receive. You will also have to pay State taxes, they don't pay that and if you wait until the end of the year you get a penalty for not having enough state taxes taken out during the year. That's just logic so take it for what it's worth.
Best of luck, leave it in if you can that's a big hit!!
Norman:worried:

When talking about the federal government, avoid using the phrase, 'make sense' and the term 'logic'

My state does not have an income tax, so I am not to concerned with that. I realize it's a huge hit but, I need the money...

Can you get a home equity loan? Wait till you retire and receive 3k or 4k a month from your TSP to live on and slowly pay off the equity loan? Taking a loan from your TSP typically is not good money management. I don't know your situation however. Good luck.

I'm using my TSP to help pay off bills. The last thing I need is another loan

You can get your 10% penalty back when you file your tax return - there is a place on the front side of a 1040 form to take back the penalty.

Really? So the over all loss would be to federal taxes. 20% up front, maybe more, maybe less at the end of the year, right?

 

[tsptalk]

Hi Snarg -

Sorry to hear about your situation. I believe the TSP will have 20% withheld from the total withdrawn amount. How you slice that up between taxes and penalties can be determined later on your tax return. Bottom line, you will be sent 80% of the amount withdrawn.

Good luck!

 

[James48843]

I'm using my TSP to help pay off bills. The last thing I need is another loan

Doing a hardship early withdrawl has lots of problems that go along with it. It prevents you, for a time, from contributing again to your TSP account, and it prevents you from obtaining those matching funds as well.

I would strongly encourage you to read all the TSP produced materials regarding a hardship withdrawl, and see if you can really live with those consequences. Many times, people find out that they are much better off doing a TSP loan (up to 50K from your account, payable back over 5 years) than they are doing a withdrawl.

It's not just the 10% penalty for early withdrawl. And not just the taxes that you'll have to pay. It's also the agency matching money you'll miss out by declaring the hardship, and not being able to make new contributions to your account for some time. All that needs to be taken into consideration before you pull that trigger.

But it is up to you.

Good luck there.

 

[James48843]

If you make a financial hardship in-service withdrawal, you will not be eligible to make contributions to that account for 6 months.

This is especially important if you are a FERS employee or a member of the uniformed services:
– If you are a FERS employee, during the 6-month period when you cannot contribute to your account, you will not receive any Agency Matching Contributions.
– If you are a member of the uniformed services, when your employee contributions from basic pay stop, any contributions from incentive pay and special pay, including bonuses, will also stop.

The TSP book on "In-Service Withdrawls" is 24 pages, and is here:

http://tsp.gov/forms/tspbk12.pdf

Good luck.

 

[James48843]

To get the booklet, click on http://www.tsp.gov

then click "forms and publications"

then click "publications"

then click "booklets"

Then look for this one:

View attachment 9052​

 

[Snarg]

Hi Snarg -

Sorry to hear about your situation. I believe the TSP will have 20% withheld from the total withdrawn amount. How you slice that up between taxes and penalties can be determined later on your tax return. Bottom line, you will be sent 80% of the amount withdrawn.

Good luck!

Well, using my positive attitude and keeping up a smile, I am hoping that the situation is only temporary

I can live with 80%. Thanks.

Doing a hardship early withdrawl has lots of problems that go along with it. It prevents you, for a time, from contributing again to your TSP account, and it prevents you from obtaining those matching funds as well.

I would strongly encourage you to read all the TSP produced materials regarding a hardship withdrawl, and see if you can really live with those consequences. Many times, people find out that they are much better off doing a TSP loan (up to 50K from your account, payable back over 5 years) than they are doing a withdrawl.

It's not just the 10% penalty for early withdrawl. And not just the taxes that you'll have to pay. It's also the agency matching money you'll miss out by declaring the hardship, and not being able to make new contributions to your account for some time. All that needs to be taken into consideration before you pull that trigger.

But it is up to you.

Good luck there.

James, thanks for all of the info. I have retired from the military and am no longer employed by the federal government so I am not able to use my TSP anymore anyway. The money is just sitting there. It is not an exorbitant amount but, something is better then nothing.

Trust me, I would love to let it sit there and grow until my golden years but, without using it now, my golden years are certain to be tarnished.