One of the first financial talks I received in the military from a base financial advisor about the TSP went something along these lines:
“Go with Roth because you pay taxes upfront and because your contributions have already been taxed you can withdraw them if you need it, you just can’t withdraw the gains on those contributions without paying a penalty”
Recently, I heard somebody say that this is false and you can’t access your Traditional or Roth contributions without paying a penalty.
After reading up on the TSP website and posts here, to my understanding, there’s two types of withdrawals you can make: In-Service Withdrawals or a rollover to an IRA (only after leaving the service).
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The in-service withdrawals have very specific guidelines in which you can access your contributions penalty free, all other cases, you get slapped with a penalty.
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After leaving the service, you can rollover your TSP to an IRA and then access your contributions without a penalty BUT I’ve also read that you have to wait 5 years after the rollover to access the contributions without a penalty, so I don’t know which is true.
So I don’t know what is true and what isn’t on this subject. Please help me understand the withdrawal process.
Note: this is for my situational awareness because it’s a confusing topic. I’m not planning on withdrawing money from my TSP.
Does anybody actually know Roth TSP withdrawal rules?
byu/Lowskillbookreviews inMilitaryFinance
Posted by Lowskillbookreviews
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Regardless of traditional or Roth, you can’t transfer or withdraw your TSP funds while in service unless you have a hardship or are 59.5.
After you separate, you can transfer Roth TSP to a Roth IRA and then withdraw contributions immediately (or you can withdraw the Roth TSP and then return your earnings to an IRA to avoid the penalty and taxes).
There are two “5 year rules” for Roth IRAs. Both have to do with withdrawing earnings.