Thread: Rollover Partial TSP to IRA - Does the rollover then lock in to age 59-1/2 rules

Hey DA44,

Check out the TSP site for more information: (Taxes: https://www.tsp.gov/PlanParticipatio...ithdrawal.html ) and Withdrawal Options: https://www.tsp.gov/PlanParticipatio...ngAccount.html

I think you are right though that if you rollover to an IRA and then withdraw you are subject to the early withdrawal 10% penalty (there are exceptions if you're using the distribution for medical or health or college or first-time home buying)

Currently they only have one partial withdrawal option, however this should be changing within the next year. With the current partial TSP Withdrawal, you can have part as a rollover to IRA, a withdrawal payment to you and another part for annuity or any single or combination you choose. The other option is to do a full withdrawal where you determine the monthly amount annually. You can do both, but only if you do partial withdrawal before full withdrawal.

If you decide to make a large withdrawal, you need to look at the tax impact based on your other income. You could end up owing more than 20% in income taxes especially if you were working for large part of year. It depends on what your marginal tax rate is each year. Best wishes in whatever you decide to do...it does get complicated

Here is a FEDSMITH article regarding early withdrawal penalties. Basically, if you retire within the year you turn 55 (or later) you aren't subject to the early withdrawal penalties on distributions from TSP. TSP is an employer sponsored plan which differs from an individual IRA account. Different rules apply.
I took a one-time distribution of $20,000.00 (20% tax), rolled over 50% of remaining TSP into a traditional IRA upon retirement (no taxes applied until I started withdrawing from the traditional), and left the remaining 50% in TSP. I started taking distributions from my TSP at 57. 20% taxes withheld, no early withdrawal penalty. Since my overall tax rate was somewhere in the neighborhood of 13-14% I got back quite a chunk at the end of the year.
However, the early withdrawal penalty did apply to distributions from the traditional IRA so I waited until I was 59-1/2, and then reduced my TSP distributions to the minimum amount ($250.00).
Your income is reduced once you retire, hence an overall lower tax burden. As evilanne stated, just be aware how the one time distribution will impact your total taxable income for year. But, since TSP taxes withdrawals at 20% it shouldn't be an issue at year's end.
Retirement income is fluid, You should reassess every year depending on the income you require to live, and ever changing life events, i.e., increased travel, home repairs/renovations, vehicle purchases, etc.
https://www.fedsmith.com/2015/05/25/...rawal-penalty/
Hope this helps.