Let’s cut right to the chase.
You want to know if you can get money out of your TSP while you are still working for the federal government.
The short answer is yes, you can. However, the devil is in the details.
Stay tuned to make sure you don’t have to pay a huge chunk of your TSP back to the government in taxes.
3 TSP Withdrawal Options While Working
Here are your 3 withdrawal options you have while still working for the government.
- TSP Loan
- Hardship Withdrawal
- Age-based Withdrawal
But all 3 options have their pros and cons. Let’s dive in.
1. TSP Loan
While working you can borrow money from your TSP and just like any loan, you have to pay it back overtime.
Normally TSP loans must be paid back within 5 years but residential loans give you 15 years to pay them back.
The interest rate for TSP loans is the same rate as what the G Fund is paying. For example, at the time of writing this article, the interest rate for new TSP loans was 3.375%.
Also, the TSP charges a $50 admin fee which they’ll just take out of your TSP loan balance. For example, if you request $2,000 then they’ll send you $1,950.
But Wait!!!
But remember, the true cost of a TSP loan is not the $50 loan fee. It is the fact that the money that you take out of your TSP is not invested and can’t grow during that time.
This can make a massive difference over time.
2. TSP Hardship Withdrawal
While a TSP hardship withdrawal is available to you regardless of your age, you can’t take one unless you:
“are experiencing negative monthly cash flow or have unpaid medical expenses, a casualty loss, or unpaid legal fees incurred for a separation or divorce, or losses due to a major natural disaster declared by the Federal Emergency Management Agency.”
Also, this is a permanent withdrawal that can’t be paid back and you lose out on all the growth that could have occurred if the money remained in the TSP.
And don’t forget that you still have to pay state and federal income taxes on the withdrawal as well as a 10% penalty if you are under 59 and ½.
So long story short, you have to really need to make this option worth it as there are a ton of downsides.
3. TSP Age-based Withdrawal
This type of withdrawal is only available to those that are already over age 59 and ½ (and therefore you can avoid the 10% early withdrawal penalty).
However, if the money is coming out of the traditional TSP you still have to pay income taxes on the withdrawal.
The one way to not pay income taxes on this withdrawal is to turn around and put the withdrawal into an IRA.
