The Thrift Savings Plan (TSP) recently announced that account holders no longer need to wait 30 days between withdrawal requests: Another step in response to the TSP Modernization Act of 2017, which permitted participants to take withdrawals more frequently than they could previously.

But just because a person can withdraw funds with less difficulty doesn’t mean they should.

Here are some considerations when it comes to TSP withdrawals at various life stages, starting with in-service withdrawals – those made from your TSP account while you are still in uniform or are working for the federal government.

There are two types of in-service withdrawals: financial hardship and age-59½.

Hardship Withdrawals

Participants should thoroughly consider all their financial options before taking a hardship withdrawal. Any withdrawal can seriously impact your ability to accumulate sufficient retirement funds. It’s also possible that an early withdrawal, even for a financial hardship, can be subject to federal income tax, state income tax, and potentially a 10% early withdrawal penalty.

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To qualify for a hardship withdrawal, you must have a financial need for one of these reasons:

• Recurring negative monthly cash flow
• Medical expenses (including household improvements needed for medical care) you have not yet paid and are not covered by insurance
• Personal casualty loss(es) you have not yet paid and are not covered by insurance
• Legal expenses you have not yet paid for separation or divorce from your spouse
• Losses due to a major disaster declared by the Federal Emergency Management Agency

In addition to these requirements, the following rules apply:

• You cannot withdraw less than $1,000.
• You may only withdraw your own contributions and any earnings those contributions have accrued.
• You can only make a financial hardship withdrawal from the account associated with your active employment at the time of your withdrawal. However, if both your uniformed services account and your civilian TSP accounts are associated with your active employment, you can make a financial hardship withdrawal from each account.

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Age-59½ In-Service Withdrawals

Those who are age 59½ can take withdrawals from their TSP account as long as they withdraw from funds in which they are vested. The amount must be at least $1,000 (or the entire vested balance if less than $1,000).

Only four age-59½ withdrawals may be taken per calendar year from the account associated with your active employment.

While those who are 59½ shouldn’t encounter an early withdrawal penalty when they take a withdrawal, the TSP is required by law to withhold 20% federal income tax on the taxable portion of the amount unless it is being rolled over into an IRA or an employer plan. Note that actual tax that is owed will depend on overall taxable income.

Withdrawals in Retirement

Once you have retired, you can log into your account or contact the ThriftLine to request a withdrawal.

As a separated participant, there are four options for taking withdrawals (withdrawal rules and tax issues may be different for beneficiary participants who have inherited a TSP account):

• Partial distribution of a specified amount
• Total distribution: Once processed, your TSP account balance will be zero and you’ll no longer be able to move money back into the TSP from eligible plans.
• Annuity purchase: You can use all or part of your TSP account to purchase a life annuity through an outside vendor, Metropolitan Life Insurance Company. If you choose the annuity option, the annuity is no longer part of your TSP account and you cannot change or cancel the purchase.
• Installments (automatic withdrawals)

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These options can be used alone or combined, but withdrawals and distributions cannot be reversed once they’ve been processed, so it’s important to make sure that you fully understand the option, the tax implications, and the effect on your TSP account.

Required Minimum Distributions

The IRS requires you take a portion of your traditional TSP account known as a Required Minimum Distribution (RMD) beginning when you reach a certain age and are separated from service. The age is currently 73, but it is gradually increasing.

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The TSP will calculate the amount you’re required to receive using your age, your traditional balance from the end of the previous year, and the IRS’s Uniform Lifetime Table. Any distributions from your Roth account cannot count toward satisfying your RMD.

For more information, see the TSP booklet on distributions.