What Happens to Your TSP if You Leave Federal Service? | Harris Federal (2024)

FAQs

What Happens to Your TSP if You Leave Federal Service? | Harris Federal? ›

Leaving uniformed services

Staying with the TSP

You can keep your TSP account after you separate from federal service as long as you have a vested balance of $200 or more. Many participants choose to keep their money in the TSP because of the TSP's low-cost funds.

All TSP participating employees who separate or retire will receive a TSP withdrawal package at the time of separation. TSP-participating employees are all employees who have a TSP account, including the following: FERS employees who are not contributing and only receiving agency automatic contributions.

The taxable portion of your withdrawal is subject to federal income tax at your ordinary rate. Also, you may have to pay state income tax. An additional IRS early withdrawal penalty of 10% may apply if you're under the age of 59½.

Age-Based Withdrawals:

The most straightforward method for penalty-free TSP withdrawals is to wait until you reach the age of 59.5. Once you cross this threshold, you can access your TSP funds without incurring any early withdrawal penalties.

Did you know if your account balance is $200 or more, you can keep it in the TSP when you leave the federal government? Once you leave the uniformed services, you'll no longer be able to make contributions.

If you decide to roll over your TSP assets to an IRA, you can choose either a traditional IRA or Roth IRA. No taxes are due if you roll over assets from a traditional TSP account to a traditional IRA, or if you roll over your contributions and earnings from a Roth TSP account to a Roth IRA.

You must work at least 5 years with the Federal Government before you are eligible for a FERS Federal Pension, and for every year you work, you will be eligible for at least 1% of your High-3 Average Salary History.

It's better to do it when you're over the retirement age. If you withdraw from the TSP early you have to pay a heavy tax for early withdrawal, and then they treat the withdrawal as income for that year so you get to pay income taxes on it as well.

Reporting taxes

We report all TSP withdrawals and distributions to the IRS, to the appropriate state tax agencies if applicable, and to you on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.

Should I cash out my TSP? ›

It's really tempting to cash out your TSP account to pay for them. But that is almost always the worst thing you can do. Most experts agree that taking money out of your TSP (or any tax-free or tax-deferred) retirement account before you turn 59½, the normal minimum distribution age, isn't smart.

An in-service withdrawal may be possible at any time. But there might be penalties if the right conditions are not met. Generally, you must be at least age 59 ½ or have a qualifying hardship that the IRS deems an immediate and heavy financial need.

If you want to make a financial hardship with- drawal, complete Form TSP-76 or TSP-U-76, Financial Hardship In-Service Withdrawal Request. 6 The forms are available from the TSP Web site, your agency personnel office, your service TSP repre- sentative, or the TSP Service Office.

The consequences of false hardship withdrawal can range from fines and penalties to tax implications or even jail time. Additionally, lying to an employer can severely hinder your career growth or result in job loss. In other words, if you don't qualify, seek an alternative solution.

The Defending Public Safety Employees' Retirement Act of 2015 allows specified federal law enforcement officers, Customs and Border Protection officers, federal firefighters, and air traffic controllers ("public safety employees") who separate from service during or after the year they turn age 50 to withdraw funds ...

You can start, change, or stop any of your regular employee contributions at any time by submitting the TSP-1, Election Form, to your agency, or using your agency's electronic version of the form.