Q. I contributed to the Thrift Savings Plan from tax exempt combat zone pay. What will happen when I begin withdrawing money from the TSP?
A. If you contributed to your TSP from your tax exempt combat zone pay, the portion of each TSP withdrawal that is based on that contribution will be free from income tax when you make a withdrawal. That amount will be noted on the Form 1099 you receive from the TSP.
If you chose a TSP annuity, the portion of your annuity that was based on your tax exempt contributions would be spread out over your life expectancy.
If you withdrew monies early from the TSP, the 10% early withdrawal penalty would not apply to the portion of the distribution that represented the tax exempt contributions.