How retiring US government workers can access retirement funds early

Personal finance Q&A with Steve Dinnen.

Q: I am a US State Department employee who plans to retire at age 53. My parents are not well and I need to care for them. I will be penalized immediately if I try to take advantage of my Thrift Savings Plan (TSP) money unless I take a lifetime annuity, which works out to my disadvantage because the payment never changes over my entire lifetime. My insurance agent told me that there is something called a 72(t) payment for employees who wish to retire before age 55. I spoke with TSP people and they have never heard of this. Would you know anything about 72(t)s? What I found out on the Internet was so complicated it just confused me further.

D.R., via e-mail

A: Evan Welch, a certified financial planner in Concord, Mass., says that under 72(t) "equally substantial distributions" may be elected if you roll the TSP money into an IRA. Note, however, that the selected income stream – calculated via the required minimum distribution (RMD) method, fixed amortization method, or fixed annuitization method – must continue until age of 59-½ or for a minimum of five years, whichever comes last, to avoid potential IRS penalties. Also, normal income taxes will apply to distributions.

Mr. Welch has never come across a client who elected 72(t) from the TSP, as all have rolled their money into IRAs. Still, he says that if you can lay your hands on a TSP-70 form, you'll find instructions on how to accomplish this task.

As the onus will be on you to make the appropriate calculations, he recommends that you consult with a tax adviser each year to ensure compliance with rules that, as you note, are very complicated.

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