Hardship withdrawl from TSP
Good Morning! Client (age 53) retired from the Federal Government on a medical disability. She took a distribution from her TSP to cover living expenses and medical bills. Does she owe the additional 10% tax penalty on the withdrawal? Thanks!
Permalink Submitted by Alan Spross on Wed, 2011-04-06 20:06
Maybe and maybe not. Whether she took the distribution as a formal hardship distribution while employed or just an early distribution following separation, there are a few penalty waivers that might apply. For the disability waiver, the disability must be of total and permanent. Getting SSD is a good indicator but not fully conclusive. If client was a public safety officer, the separation at 55 exception is reduced to age 50. Another exception is medical expenses in excess of 7.5% of AGI. If she is insured it may be difficult to have that much in qualified medical expenses, but this should be checked out.
If any part of the distribution is covered by an exception, Form 5329 should be completed to show the exception code for the penalty waiver.
Permalink Submitted by Gail Fialkow on Thu, 2011-04-07 11:31
Alan,
As always, you rock – thank you!