Good afternoon, I will be grateful for an answer to my question related to TSP early distribution and taxes/IRS. The situation is the following: I am currently a NG member and working as a Federal Employee from 2014, and I'm a TurboTax customer for years. I have both military and civilian TSP accounts. My question is about the civilian one. Unfortunately, my family circumstances back in my home country look like I will have to move back there not later than by the end of 2020. At the same time, my family has some debt which is currently sucking money out of us, and we don't really have a lot to live on. Federal employees don't get paid too much and insurance premiums etc. are increasing way faster than the salary. So, since I don't plan to retire here anyway, and to get some funds available to fix the house before sale etc., I wanted to withdraw my TSP money (we're talking about less than $7000) and use it to get out of debt and actually be able to do anything. I have a wife and twin daughters (will be 4 soon) one of whom has Type I diabetes, so she needs constant attention and we cannot use any daycare etc., it's simply unaffordable, especially as most of them don't have nurses for diabetics, and the ones that do will cost ridiculous money, so my wife can't work. So, our financial situation is pretty heavy. At the same time, there are all these insurance payments growing every year, copays, large utility bills in the fall/wintertime as we're unlucky enough to have Unitil which is nothing but a masked robber. And we can barely make ends meet, we had to really start saving every dollar last year as our debt reached a number too high. My question is related to the amount I can withdraw. The TSP doesn't really care as long as the employer doesn't mind, and they won't, I have very good relationship there and they will never object. But I was also advised to contact the IRS by the TSP, and when I called, the customer service wasn't really helpful, just referred me to their publications. At the same time, when I directly asked if they set any restrictions, I understood that they don't, but on the IRS website you see it many times: the amount you withdraw must be not more than your financial need, and that I can be audited and asked for proof. This makes me extremely nervous as the last thing I want is to take the money, get out of debt, and then get issues with the IRS or even get arrested (I know they throw people in jail very easily for tax violations in USA) because I took too much. So here is the question, finally: does the IRS really like to audit such things? Do they like to ask for proof, so you must provide substantiation for every dollar you took out, and they punish you heavily if you get an extra sum which they think you couldn't take? Because I know that I will pay taxes and penalties, I told them over the phone that it's not an issue, they will get their money. But I really would like to get what I can and improve my financial situation so that I can actually start preparing for the relocation. Please help me understand!
posted
last updated
June 27, 2019
1:03 PM
