Which Age Rule Governs Your TSP Withdrawal

Almost everyone approaching a TSP withdrawal is working from the same mental model: there is an age, and once you are past it the money is yours without penalty. There are three rules, they cost real money, and none of them is decided by how old you are when you withdraw.

One is decided by the calendar year you separated. One by how long the payments are expected to last. One by the year you were born. Getting them confused is what produces the two expensive surprises below.

Rule 1: the 10% penalty is decided by the year you separated

26 U.S.C. § 72(t)(2)(A)(v) removes the 10% additional tax for distributions made to an employee after separation from service after attainment of age 55. IRS Notice 87-13 reads that as separating during or after the calendar year in which you turn 55 — a calendar-year test, not a birthday test.

• Separating in March of the year you turn 55 qualifies, even though you were 54 on the day.
• Separating in December of the year you turn 54 does not, and nothing reopens it. Every withdrawal is penalised until you reach 59½.

Special-provision employees — the 6c categories — get age 50 instead, or 25 years of service under the plan, whichever comes first, under § 72(t)(10) as amended by SECURE 2.0.

The mistake that costs the most, and it is entirely avoidable

The age-55 exemption belongs to the plan, not to the money. § 72(t)(2)(A)(v) reaches a distribution from a qualified plan, and an individual retirement account is not one. Roll your TSP balance into an IRA before 59½ and the exemption you had already earned no longer covers it: the same withdrawal, by the same person, in the same year, becomes a 10% penalty.

Someone who separates at 55 and draws $40,000 a year until 59½ has taken about $140,000. Inside the TSP that is penalty-free. Rolled to an IRA first, it costs $14,000 in additional tax — for a transaction usually undertaken to get better investment options. Waiting until 59½ to roll over avoids the whole of it, and no free calculator we have found models the difference.

Rule 2: the 20% withholding is decided by how long the payments last

§ 3405(c) applies a mandatory 20% withholding to an eligible rollover distribution — mandatory in the strict sense: it cannot be waived or reduced however little tax you expect to owe. But § 402(c)(4)(A) says a series of substantially equal periodic payments expected to last ten years or more is not an eligible rollover distribution at all, so it falls out of that regime and is withheld as wages on the Form W-4P you file.

The consequence inverts the usual intuition — taking less can escape the mandatory withholding entirely:

• $400,000 balance, $50,000 a year: expected to last 8 years → mandatory 20%, unwaivable.
• $400,000 balance, $40,000 a year: expected to last 10 years → withheld as wages at the rate you choose.

And withholding is not tax. The 20% is a deposit against a liability computed on your whole year — while the 10% penalty is not withheld at all. An early withdrawal that looks fully covered at 20% is short by the entire penalty when the return is filed.

Rule 3: the required minimum is decided by the year you were born

SECURE 2.0 § 107 set the applicable age at 73, rising to 75 for people who attain 74 after 2032. There is no applicable age of 74 for anybody. The 1959 birth cohort belonged to neither statutory test until the IRS proposed regulations of July 2024 placed it at 73.

• Born 1950 or earlier: 72.
• Born 1951–1959: 73.
• Born 1960 or later: 75.

The amount divides the balance at the end of the prior year— not today’s balance — by a divisor from the Uniform Lifetime Table: 26.5 at 73, 24.6 at 75. And it is a floor rather than a schedule, so it can force out more than the installment you elected, in a year you did not want the income. Missing it carries an excise tax of 25%, reduced to 10% if corrected inside the correction window.

What to do with this

Three questions, in this order, and each answered from a different fact: which calendar year did I separate in decides the penalty; how long will these payments last decides the withholding; what year was I born decides when withdrawals stop being optional. Your age today answers none of them.

And if you separated at 55 or later and are not yet 59½, treat any rollover out of the TSP as a decision with a price on it rather than a piece of housekeeping.

Sources

• 26 U.S.C. § 72(t) — the 10% additional tax and its exceptions, including the separation rule at (2)(A)(v) and public safety employees at (10). Text of § 72
• 26 U.S.C. § 3405 — the three withholding regimes, including the mandatory 20% at (c). Text of § 3405
• Treas. Reg. § 1.401(a)(9)-9(c) — the Uniform Lifetime Table. Text of the regulation
• TSP — withdrawals and required minimum distributions. Withdrawing from Your TSP Account (PDF)

Every rule above is applied by lib/tsp-withdrawal.js, which transcribes the Uniform Lifetime Table rather than approximating it. Roth TSP is outside this guide: the ordering rules for Roth distributions are a different computation, not a variation on this one.

This guide is informational only. It is not financial, tax, or legal advice, and FedAnnuity is not affiliated with OPM or the U.S. government. Retirement rules turn on the specific facts of a career, and only your agency and OPM can give you a binding figure.

Last reviewed: August 2026 · Against 26 U.S.C. §§ 72(t), 3405 and 401(a)(9), as amended by SECURE 2.0.