Page 54 - The Informed Fed--Hearn (edited 10.29.20)
P. 54

Public  Safety  Employees’  exemption  to  the  Early  Withdrawal
               Penalty

                   Public  Law  114-26,  the  Defending  Public  Safety  Employees'
               Retirement Act, was signed by the President on June 29, 2015. This bill
               amends  the  Internal  Revenue  Code  to  allow  specified  federal  law
               enforcement officers, customs and border protection officers, federal
               firefighters, and air traffic controllers (“public safety employees”) who
               separate from service during or after the year they turn age 50 to make a
               withdrawal  from  the  TSP  without  incurring  a  10%  early  withdrawal
               penalty. This change is effective for withdrawals from the TSP paid after
               December  31,  2015.  Another  option  is  to  borrow  the  money  (from
               yourself) and repay yourself with interest.
                   One of the unique features of the TSP plan set up by Congress for
               federal employees is that if you retire from federal service prior to age
               59½ and have not paid a penalty for a previous withdrawal, you may roll
               your  TSP  funds  into  a  qualified  plan  without  penalty.  An  additional
               problem with the TSP is that the investment options it offers are very
               low return or very high risk. The past few years point out the dangers of
               tying  retirement  funds  to  the  market.  If  you  are  a  federal  employee,
               you’re well aware of the fact that the vast majority of your coworkers lost
               money in their TSP after October 2007. Many lost more money in 2008
               than they earned in wages during the same period. Those who didn’t lose
               were primarily in the G fund and gained around 3%. Remember, one-
               third of that will be taken out in taxes, so the resulting gain will be slightly
               less than the cost of living increase over the same period.
                   The traditional TSP option has a tax liability. Taxes will have to be
               paid on all contributions and interest. In the  event of the  premature
               death of the employee, those taxes can be at the highest assessed rate.
               The 401k has proven to be a windfall for the government to collect taxes
               when an employee dies leaving money in the account. In this case, the



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