I want to start a Thrift Savings Plan but what happens if…?
I am fresh in the military (since July of 2007) and I want to start a TSP but what happens or how does it work if I don’t choose to stay in the full time to retire (20 yrs). What kind of withdrawal penalties, taxes, etc. will I encounter or how hard would it be for me to get my money. Please be detailed as possible.
It works similarly to a 401K plan. While you are in the military, you cannot withdraw the money unless you have a qualified hardship. In that case you will pay regular income tax plus a 10% early withdrawal penalty (if you’re less than 59 1/2 at the time of the withdrawal). You can borrow from your TSP, but you have to pay it all back before you separate from the service.
Once you separate from the military, regardless of how long you choose to serve, you will have the choice of taking an outright distribution of the full amount of the TSP or doing a direct rollover into an IRA or another qualified retirement plan. If you take the money before age 59 1/2 and you do not roll it over into an IRA or another qualified retirement plan, you will pay regular income tax plus the 10% penalty.