Why can't I cash out my TSP early???

I'm in the military, and I contributed to my TSP for a few years. I've since stopped about a year ago because I felt I was saving too much for retirement. My spouse and I have been maxing out our IRA's since I was 21. Anyway, I want my money out of the TSP, but I'm being told that I can't. How can this be? It's MY money. Sure, I expect a 10% penalty for early withdrawal, but to not be allowed to take it out boggles my mind. Is there honestly no way to liquidate my account? FWIW, I'm 31 and still in the military (10 years 'til I'm retirement eligible).

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Originally Posted by filly

I'm in the military, and I contributed to my TSP for a few years. I've since stopped about a year ago because I felt I was saving too much for retirement. My spouse and I have been maxing out our IRA's since I was 21. Anyway, I want my money out of the TSP, but I'm being told that I can't. How can this be? It's MY money. Sure, I expect a 10% penalty for early withdrawal, but to not be allowed to take it out boggles my mind. Is there honestly no way to liquidate my account? FWIW, I'm 31 and still in the military (10 years 'til I'm retirement eligible).

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Filly, I am afraid that your only option, now that you started the "optional" TSP account, would be to sever your government employment (for you that would be pretty drastic). You can apply for a loan, that would require meeting the criteria, (hardship, home purchase, etc.), but then you would have to signup for a repayment plan, to repay your account.

Without leaving the government you don't have many choices. This should have been explained to you before signing up to TSP, but I would not doubt one bit, that it was most likely glossed over. LOL

I'm still new in my military career (little over four years) and I am really considering putting a halt on my TSP account and going the Roth IRA route. With no matching for the military it just doesn't seem like a good deal to be locked in something so hard like that and with the 2 IFT per month crap coming along...just doesn't seem so good anymore to me. I only have like $4,000 in my TSP so it isn't much, but a little to play around with in there I suppose. Maybe I should start maxing out a Roth IRA...

Filly maybe you had the same opinions on the TSP and the IRA seemed the better route for you as well? Not trying to take over your thread, but hopefully I can get something out of it too hehe.

Thanks,
Jared

Check this out for an exit strategy. My daughter recently opened a self directed Roth IRA. Since she will be limited to a $5000.00 contribution this year. We have to think of another way to increase contributions for 2009. I believe the new rules for 2008 now allow a direct rollover into a Roth from other tax deferred plans as long as the taxes are paid up front. She will be deployed again this December and also informs me she may terminate her military employment. So I'm thinking that while she is in beautiful Iraq serving her country she could maximize her TSP contribution to the tune of $44,000.00. When she terminates and does a rollover to the Roth she won't have a tax basis - her AGI will be zippo. Now that's one way to beef up a Roth IRA as a reward for serving in a combat zone. She also has a self directed regular brokerage account that she will make monthly contributions into and Dad will buy her stocks that pay dividends and have the potential for capital appreciation. She wants to further her education outside the military and her accounts will help defray some of those expenses. I just know the bull will do his best to help out this veteran.

Filly- you CAN get a hardship withdrawl- if it is a genuine hardship, and you meet the criteria. The rules are found here:

http://www.tsp.gov/uniserv/features/chapter12.html#sub2

However, if you are taking it out simply because you want to do something else with it, you might be far better off looking at other alternatives.

yes, you'll pay a substaintal penalty for early withdrawl, and you will also have a taxable event if you do end up taking out the money now. I suggest you think very hard about the pros and cons of making a hard-ship within service withdrawl.

What do you want the money for?

I will go over 20 years in the military in May 08, and the possibility exists I might retire in December. I have been putting money into TSP since it first was available for the military. I wish I would have put the max into it when I first started. I had no idea how beneficial it would have been. Nevertheless I have a balance of $45K, and have made $8K so far since inception.

You mentioned you save too much for retirement. IS THERE SUCH A THING?????

I have an IRA, but I only dumped money into it because last year I was in Afghanistan for 6 months and decided to throw $4K into a tax free Roth since it wouldn't be taxable anyway no matter what. I also thru some into TSP, just not the max.

I would seriously reconsider your trying to get the money out. In fact, I would keep putting money into it. What better way to get your taxes down that to put money into TSP since we get nice tax free benefits anyway, ie...BAH, BAS, Clothing allowance, etc...

Even if I retire in December if I don't promote, I still want to max out my TSP for the year, because I might not get a govt job where I can put more into TSP.

Just remember this...TSP is NOT a quick turnaround money maker. It is for later in life when you are enjoying your life as a worker. I can't wait 20 years from now where I can use that money in addition to my military retirement check and chill out on my front porch or travel in a RV. :)

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Originally Posted by James48843

Filly- you CAN get a hardship withdrawl- if it is a genuine hardship, and you meet the criteria. The rules are found here:

http://www.tsp.gov/uniserv/features/chapter12.html#sub2

However, if you are taking it out simply because you want to do something else with it, you might be far better off looking at other alternatives.

yes, you'll pay a substaintal penalty for early withdrawl, and you will also have a taxable event if you do end up taking out the money now. I suggest you think very hard about the pros and cons of making a hard-ship within service withdrawl.

What do you want the money for?

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According to the FAQ, there are two types of loans, general purpose and home purchase. The first says nothing of "hardship" and requires NO documentation. I took out a loan a few years back for debt consolidation/pay of credit cards. Once you have the loan, you can "reamortize" easily on-line, possibly as often as you like. There's some sort of mystery formula used to compute how much you can borrow based upon percentages of how much you've actually contributed versus earnings so you would not be able to get at it all, but it would be relatively easy to "borrow" as much of your money as you can (the "interest" is at the G-fund rate and goes back to your fund) for the maximum 60 months, then every couple of months you could "reammortize" back out to 60 months to lower your payment and drag out the loan until you ETS. OR, you could pay it off as quickly as you can afford to so you can "borrow" it again (has to be at least 60 days after repayment, I bellieve) and invest it as you'd like, again. Repeat this process until you ETS, essentially using your TSP as a sort of investment savings account until you can actually get at it.

It is not advisable to dip into your retirement nest-egg unless a real emergency exists. However, for the sake of gaining a better understanding of the available options and limitations, I would like to know whether one can withdraw some funds after age 59 and 1/2 by taking a penalty hit of the 20% witholding tax and later also do a transfer roll-over into a private sector IRA in a brokerage account?

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Originally Posted by James48843

Filly- you CAN get a hardship withdrawl- if it is a genuine hardship, and you meet the criteria. The rules are found here:

http://www.tsp.gov/uniserv/features/chapter12.html#sub2

However, if you are taking it out simply because you want to do something else with it, you might be far better off looking at other alternatives.

yes, you'll pay a substaintal penalty for early withdrawl, and you will also have a taxable event if you do end up taking out the money now. I suggest you think very hard about the pros and cons of making a hard-ship within service withdrawl.

What do you want the money for?

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Yeah, go for the loan aspect... loan yourself the money, then invest that money into your IRA. The loan is paid back through payroll deductions, and it's very easy to reamortize. Only thing is that you end up paying taxes on it twice, first when you invest it into the IRA, and then at 59 1/2 when you withdraw it for retirement.

Unfortunately, the only real way to get that money is to leave military service and then roll it over into an IRA.