Qualified Reservist Distribution – TSP & IRA Withdrawals for Reservists

An alert reader, HTown Harry, sent along a link to a tax loophole which I’ve never heard of.

Did you know that Reserve and National Guard servicemembers can make penalty-free withdrawals from their IRAs?

Ed Slott has been the national expert on IRAs for over a decade, and he has the credibility to offer this advice from the IRS IRA regulations. A “Qualified Reservist Distribution” allows withdrawals from tax-deferred accounts like IRAs, 401(k)s, 403(b)s, and others.

Early Withdrawal Penalties – And How to Avoid Them

Most retirement plans have a 10% early withdrawal penalty if you make withdrawals prior to age 59 1/2. This is in addition to any other taxes you may have to pay (which you will if it is a Traditional retirement account).

Some people know that there are exceptions to the penalty when the early withdrawal is for death, disability, and certain medical expenses. Some accounts also allow participants to begin penalty-free withdrawals at age 55 if their separation from their employer came on or during the year in which they turned age 55.

There is also Rule 72(t), which requires participants to take substantially equal periodic payments (SEPPs) over a minimum of 5-years. There are very strict IRS guidelines that are outside the scope of this article.

Many people also know that a first-time homebuyer can take a Roth IRA withdrawal.

But few people (me included) have heard about QRDs.

Qualified Reservist Distribution – How Mobilized Reservists Can Take Penalty-Free Early Withdrawals

Here are the requirements:

  • be mobilized after 11 September 2001 for at least 180 days, or for an indefinite period
  • take the distribution during that period

Yes, you can make a QRD from your Thrift Savings Plan account too. (See page 7 of that PDF.)

Keep in mind that even when you can make a QRD, you should only do so as a last resort. It’s intended to help with temporary cash flow problems during a mobilization, and you’re essentially cannibalizing your retirement income for today’s financial emergency.

It’s better than taking on credit-card debt, but it’s also a sign of a financial problem that has to be addressed and corrected. You should have an adequate emergency fund for deployment surprises, and ideally, you’d return the money to your retirement account as soon as the problem is dealt with.

You’ll still pay regular income taxes on the withdrawal, but there will be no penalty.

Even better, if you decide that you didn’t need the withdrawal then you can repay the QRD to your IRA within two years of the withdrawal. Read those links for more details and consult with a tax advisor before you try this at home.

Related articles:
Will the military pay off your student loans?
529 college savings for military families
Should you join the Reserves or National Guard? (for the GI Bill benefits)
Join the military to get rich and retire early?: the rest of the story

WHAT I DO: I help you reach financial independence. For free. I retired in 2002 after 20 years in the Navy's submarine force. I wrote "The Military Guide to Financial Independence and Retirement" to share the stories of over 50 other financially independent servicemembers, veterans, and families. All of my writing revenue is donated to military-friendly charities.

2 Comments
  1. Doug-

    Thanks for the tip about the TSP Qualified Reservist Distribution. I noticed that my new employer’s 401k has this provision, but I could not find the same language anywhere in the TSP’s withdrawals FAQ page.

    Thanks for the Oolie!

    • You’re welcome! Even when I knew what I was looking for I had to search the whole site to find it.

      Good to see that the employer 401(k) agreement includes the requirement, too. It would’ve been all too easy to just reference a line of the tax code without explanation.

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