Penalty-free TSP withdrawals depend on age at separation from federal service. Separating in the year you turn 55 or later allows penalty-free withdrawals, while separating earlier generally requires waiting until 59 and a half. Permanent disability and SEPP are exceptions to that rule, and required minimum distributions begin at age 73.
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The answer depends on two things: your age and when you separated from federal service.
If you separate from federal service in the year you turn 55 or later, you can start taking withdrawals from your TSP without the 10% early withdrawal penalty. This is sometimes called the rule of 55, and it applies specifically to workplace retirement plans like TSP. If you separate before 55, penalty-free withdrawals generally are not available until after age 59 and a half.
That said, there are some exceptions. One being if you become permanently disabled. Another example is a structured withdrawal approach called Substantially Equal Periodic Payments, or SEPP, which allows you to set up a stream of withdrawals before age 59 and a half without the penalty, as long as you stick to a specific payment schedule.
And then there's age 73 or 75, depending on your birth year, which is where withdrawals stop being optional altogether. At that point, the IRS requires you to start taking what are called required minimum distributions each year based on your account balance and life expectancy. If you don't take them, there are tax penalties.
There's no single right time to start withdrawing from your TSP. It depends on your overall income, your other sources of retirement funds, and how those withdrawals are going to be taxed. Getting that timing right is one of the most consequential decisions in the retirement planning process. And it's exactly the kind of thing Harris Federal Financial Advisors helps federal employees like yourself think through.
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