How TSP Planning Changed for Public Safety Officers

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By on March 28, 2017 in Pay & Benefits, Retirement with 0 Comments

This Made Planning Hard

For years, there was a tax advantage that applied to most Public Safety officer retirees; but it DID NOT APPLY to certain FERS and CSRS Law Enforcement Officers, Firefighters, and Air Traffic Controllers covered by Special Provisions. This made retirement planning much harder.

Special Retirement Rules

There are special retirement rules for FERS and CSRS employees covered under the Special Retirement Provisions. This can cause a big challenge in retirement because Special Provisions employees can be eligible to retire at a younger age, and they have a mandatory age by which they must retire.

FERS and CSRS Special Provision employees are eligible to retire if they are:

  • Age 50 with 20 years of creditable service; or
  • Any age with 25 years of creditable service

Special Provisions employees also have a mandatory retirement age. This means that the employee must retire by the last day of the month in which they reach:

  • Age 57 for Law Enforcement Officers, Firefighters, and Military Reserve Technicians
  • Age 56 for Air Traffic Controllers

Here’s Where The Problem Can Start

TSP has specific age rules when taking a withdrawal—you must be at least age 59 ½. If you’re younger, you could have to pay a 10% early age withdrawal penalty plus a possible state penalty. That can really add up!

But there’s an exception: if you retire or separate from service in or after the year that you turn 55, the TSP early age penalty is waived.

This poses a problem for FERS/CSRS Public Safety Officers because they are eligible to retire at an age younger than 55. This causes a financial obstacle because if they retired before age 55, they were saddled with that early age withdrawal penalty until they reach age 59 ½.

A Solution: The Defending Public Safety Employees’ Retirement Act

Thankfully, there’s a relatively new TSP law, Defending Public Safety Employees’ Retirement Act, that grants an exception to the early age withdrawal penalty for certain Public Safety Officers.

Beginning January 1, 2016, a public safety officer who retires or who retired at age 50 or older can include TSP income without the consequences of an early age withdrawal penalty. This allows for more flexibility.

Special Provisions employees who retire at age 50 or older can include TSP income in their plans from day one. This is what makes it easier to build a sound retirement plan and have clarity on TSP. You can read the full details from TSP.

Case Study

The video above explains how this new law can help Special Provisions employees with their TSP planning for retirement.

Warning

This new rule only covers withdrawals from TSP—it does not apply to withdrawals from any other retirement savings account!  If you transfer your TSP to an IRA, for instance, you lose that waiver. Keeping your retirement savings at TSP until you reach age 59 ½ may help you have more flexibility and less tax consequences.

The Defending Public Safety Employees’ Retirement Act has opened the retirement planning options for many Special Provisions employees and retirees who retired under age 55. It’s a valuable change to the Special Provisions retirement benefits.

Be sure to get your free companion guide, The TSP Check Up, to help plan your retirement.

© 2018 Kelly Monroe. All rights reserved. This article may not be reproduced without express written consent from Kelly Monroe.

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About the Author

Kelly Monroe is the creator and chief illustrator of the FERS Blueprint Online Retirement School. She’s a licensed financial planner and has consulted with over 2,300 Federal employees to help them clarify their retirement planning. Be sure to get your free retirement quiz, The FERS Blueprint Retirement Quiz, to help plan your retirement.

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