TSP Hardship Withdrawal Requirements

The Thrift Savings Plan (TSP) has a feature that allows its members to withdraw money during a financial emergency. While this can be helpful in a tight situation, it is not a decision to take lightly. When money is taken out early, it cannot be replaced into the TSP and you will lose out on…
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TSP requirements investor

The Thrift Savings Plan (TSP) has a feature that allows its members to withdraw money during a financial emergency. While this can be helpful in a tight situation, it is not a decision to take lightly. When money is taken out early, it cannot be replaced into the TSP and you will lose out on any potential growth from those funds.

The TSP is designed similar to a 401(k) plan, it is a long-term retirement savings plan with tax deferral advantages. It is not designed to be a temporary savings account, or to be tapped into before you are normally eligible, which is age 59 1/2. To deter people from taking early withdrawals, taxes and penalties are assessed in addition to the inability to replace withdrawn funds. Strict restrictions are also in place to determine who is eligible for an early withdrawals.

What are the Rules for a Financial Hardship Withdrawal?

TSP members must still be employed by the Federal Government to be eligible for financial hardship withdrawals. The amount of the financial hardship withdrawal is limited to your financial need, but you cannot withdraw less than $1,000. You may be able to withdraw both your contributions and earnings for a financial hardship, but as previously mentioned, you cannot replace any of these funds once they are withdrawn.

To be eligible for a hardship withdrawal, your financial need must result from any of these 4 conditions:

  1. Negative Monthly Cash Flow: To determine negative cash flow, one can utilize the worksheet that is provided with the Financial Hardship Withdrawal Request (Form TSP-76). You do not have to return the worksheet with your request for a financial hardship withdrawal, however, you will be required to affirm under penalty of perjury that you have a genuine financial hardship and the reason for the hardship. It is a good idea to maintain a copy of this form for your records.
  2. Medical Expenses (including household improvements needed for medical care)
  3. Personal Casualty Losses
  4. Legal Expenses for Separation or Divorce

What Happens After the Hardship Withdrawal?

Besides the inability to ever repay the funds you withdrew from your TSP account, you cannot contribute to your TSP account for 6 months. If you participate in FERS, you will not receive any Agency Matching Contributions during the time you are not eligible to contribute to the TSP. You will, however, continue receiving the automatic (1%) contribution from your agency.

At the conclusion of the 6-month waiting period, you will need to change your contribution election form if you wish to resume contributions. You will not be able to apply for another financial hardship withdrawal request until 6 months have passed.

What is the Cost of a Financial Hardship Withdrawal?

A lot. You future retirement income will be permanently diminished by the amount you withdraw, plus the earnings you may have realized on your investment. The other consideration is taxes and penalties.

  • Taxes: Your withdrawal is subject to Federal income tax, and may also be subject to state income tax as well. The TSP will automatically withhold 10% of the funds you withdraw unless you instruct them to withhold a different amount.
  • Penalties: If you are less than 59 ½ when you make the withdrawal, you may be subject to a 10 percent early withdrawal penalty tax in addition to the income tax.
  • 6 Month Pause on New Contributions: In addition, if you are a FERS employee, you will also not receive any matching contributions because you will not be making employee contributions. You will continue to receive the automatic 1%, but you will be leaving a lot of other funds on the table and will never be able to recover them.

Is It Worth It?

In the most urgent cases, you can probably justify it. But because you will have to pay taxes, possibly a lot in penalties, and are limiting the potential for the growth of your retirement funds, this is may not be the best available option. I would strongly consider applying for a loan before paying so many taxes and fees. As with everything though, your situation is unique and you should consult with a professional financial advisor before deciding whether or not to pursue this avenue.

For more detailed information about TSP financial hardship withdrawals, please visit the official TSP page – TSP Features for Civilians.

For more detailed information about the tax rules affecting in-service withdrawals, read the tax notice “Important Tax Information About Payments From Your TSP Account.”

Qualified Reservist Distribution – TSP & IRA Withdrawals for Reservists

Did you know that Reserve and National Guard servicemembers can make penalty-free withdrawals from their IRAs?

Ed Slott has been the national expert on IRAs for over a decade, and he has the credibility to offer this advice from the IRS IRA regulations. A “Qualified Reservist Distribution” allows withdrawals from tax-deferred accounts like IRAs, 401(k)s, 403(b)s, and others.

Early Withdrawal Penalties and How to Avoid Them

Most retirement plans have a 10% early withdrawal penalty if you make withdrawals prior to age 59 1/2. This is in addition to any other taxes you may have to pay (which you will if it is a Traditional retirement account).

Some people know that there are exceptions to the penalty when the early withdrawal is for death, disability, and certain medical expenses. Some accounts also allow participants to begin penalty-free withdrawals at age 55 if their separation from their employer came on or during the year in which they turned age 55.

There is also Rule 72(t), which requires participants to take substantially equal periodic payments (SEPPs) over a minimum of 5-years. There are very strict IRS guidelines that are outside the scope of this article.

Many people also know that a first-time homebuyer can take a Roth IRA withdrawal.

But few people (me included) have heard about QRDs.

Qualified Reservist Distribution – How Mobilized Reservists Can Take Penalty-Free Early Withdrawals

Here are the requirements:

  • be mobilized after 11 September 2001 for at least 180 days, or for an indefinite period
  • take the distribution during that period

Yes, you can make a QRD from your Thrift Savings Plan account too. (See page 7 of that PDF.)

Keep in mind that even when you can make a QRD, you should only do so as a last resort. It’s intended to help with temporary cash flow problems during a mobilization, and you’re essentially cannibalizing your retirement income for today’s financial emergency.

It’s better than taking on credit-card debt, but it’s also a sign of a financial problem that has to be addressed and corrected. You should have an adequate emergency fund for deployment surprises, and ideally, you’d return the money to your retirement account as soon as the problem is dealt with.

You’ll still pay regular income taxes on the withdrawal, but there will be no penalty.

Even better, if you decide that you didn’t need the withdrawal then you can repay the QRD to your IRA within two years of the withdrawal. Read those links for more details and consult with a tax advisor before you try this at home.

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About Ryan Guina

Ryan Guina is The Military Wallet's founder. He is a writer, small business owner, and entrepreneur. He served over six years on active duty in the USAF and is a current member of the Illinois Air National Guard.

Ryan started The Military Wallet in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about personal finance and investing at Cash Money Life.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free Personal Capital account here.

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  1. Brandon McDaniel says

    I have stopped paying into my tsp. I am still active but want to close out my account. How can I do it?

  2. Robert says

    Hello, I am going to request a hardship withdrawal. I just received my 2018 annual statement. Can anyone tell me which one of the amounts shown on this statement is the amount eligible to be withdrawn? Is it only the ending balance under “Summary of your account activity 2018” or is it the amount shown as the total for “share summary by fund” or is there some other amount I am not able to see? Please help me figure this out. Thank you for you time and attention.

    • Ryan Guina says

      Hello Robert,

      I recommend asking the TSP customer support desk. They will be able to provide the most accurate information, as well as explain how it works, any limitations, and help you process the request.

      Best wishes!

  3. Paul says

    Ryan, If I take out a 50K hardship withdrawal and use all of it to pay off credit card debt ($25,000) and the remaining TSP loan (20K), would the withdrawal be considered taxable income? Looking at 1099R, under which specific circumstances would TSP consider the withdrawal to be non-taxable ($0.00 in Box 2a on 1099R)?

    • Ryan Guina says

      Paul, I do not believe you are eligible for a hardship withdrawal under these circumstances, unless your credit card payments and TSP loan payments are causing the financial hardship (I.e. the monthly payments are preventing you from keeping your head above water). Here is a statement directly from the TSP:

      “To qualify, you must have an immediate and significant financial need that necessitates a distribution from your TSP account and your need must arise out of either a recurring negative monthly cash flow situation, medical expenses, legal expenses for separation or divorce, or personal casualty loss. You cannot request a financial hardship withdrawal for expenses that you have already paid or that are reimbursable to you.” (source, 2nd paragraph).

      Based on the same document, it looks like all withdrawals are taxable unless they are from tax-exempt contributions, or the Roth TSP. In addition, you would be required to pay a 10% early withdrawal penalty on the amount withdrawn (if under the age of 59.5). I am unaware of any exceptions to these conditions.

    • Ryan Guina says

      Romeo, You can withdraw some of your TSP at any time, but you would need to pay early withdrawal penalties unless you are already age 57.5 or older or you qualify for a hardship withdrawal. Early withdrawal penalties typically cost an immediate 10% penalty, plus you need to pay taxes on the withdrawal. For example, if you make an early withdrawal of $10,000, you would pay taxes on it (probably at least $2,500), plus 10%, which is $1,000. So your $10,000 withdrawal would only get you around $6,500, and 35% of your withdrawal would immediately go to the IRS. In most cases, an early withdrawal is a bad idea. I hope this helps.

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