Law Assists Public Safety Employees with Retirement

March 20, 2017 George Ray

This post was originally published on July 07, 2015 at federalbenefitsadvocates.com

By George Ray

On June 29th, the President signed the Defending Public Safety Employees Retirement Act (H.R. 2146) which allows retired Federal public safety officers to access their Thrift Savings Plan (TSP) funds as early as age 50 without incurring a tax penalty.

Previously, the law provided for an exception to the IRS rules for Federal employees who have retired from service at age 55 or later to receive distributions from the Thrift Savings Plan without penalty prior to age 59 ½ . However, Federal public safety employees such as law enforcement officers, customs and border protection officers, firefighters and air traffic controllers can be eligible to retire at age 50 with a minimum of 20 years of service. Lacking an exception, retired public safety employees were forced to wait to access their TSP retirement savings to avoid an early withdrawal penalty.

The new law amends the Internal Revenue Code with respect to the exemption from the 10% penalty tax on early distributions and permits those public safety employees who are eligible for a full and immediate retirement to also access their TSP savings without needing to wait until later to avoid an early withdrawal penalty.

The law eliminates the restriction that only distributions from governmental plans that are defined benefit plans qualify for the exemption, thus allowing an exemption of distributions from defined contribution plans and other types of governmental plans. Additionally, early distributions are not treated as a modification of substantially equal payments for purposes of determining an increase in the penalty tax.

It’s important to note that that although the original bill asked for this modification to the law for distributions made after December 31, 2014, the final regulations were changed to apply to distributions made after December 31, 2015. This means that public safety employees retiring in the 2016 calendar year and beyond will be able to take distributions from the TSP without incurring a tax penalty as early as age 50 after retiring under the age 50 with 20 years of service requirement. This includes those who may have already retired and are now age 50 or older.