What is the “Rule of 55” and Does It Apply to FERS?

October 03, 2025

The “Rule of 55” is a provision in the IRS tax code that allows employees to take penalty-free withdrawals from their employer-sponsored retirement plan.

This rule starts the year they turn 55 and applies if they separate from service in that same calendar year or later.

It helps bridge the gap for those who retire early and want access to their retirement savings without incurring the 10% early withdrawal penalty (which normally applies to withdrawals taken before age 59½).

✅ Key Point: This only applies to the account associated with the employer from which you separated — not to IRAs or prior employer plans.

So Does the Rule of 55 Apply to Federal Employees under FERS or CSRS?

Yes. But with important caveats.

Federal employees covered under FERS or CSRS can access their Thrift Savings Plan (TSP) funds without the 10% early withdrawal penalty if they retire or separate from service in the year they turn 55 or later.

There’s also a reduced age limit of 50 if retiring under certain law enforcement, firefighter, or air traffic controller provisions.

So while TSP doesn't officially call it the “Rule of 55,” the concept does apply under federal retirement rules.

Common Misunderstandings

1) Myth: "I have to be 59½ to access TSP without penalty."

  • Fact: If you retire or separate in the year you turn 55 or older, you're eligible to make withdrawals without the 10% penalty.

2) Myth: "This applies even if I rolled my TSP into an IRA."

  • Fact: No. If you roll your TSP into an IRA, the Rule of 55 no longer applies, and you'll be subject to the 59½ rule for IRA withdrawals.

3) Myth: "The Rule of 55 gives me full access to everything tax-free."

  • Fact: Withdrawals are penalty-free, but still subject to regular income tax unless they’re from the Roth TSP (and even then, Roth rules apply).

Should You Use the Rule of 55?

It can be a powerful planning tool if:

  • You're retiring in your mid-to-late 50s.

  • You want access to retirement funds before 59½.

  • You plan to leave your TSP balance where it is (don’t roll it to an IRA).

However, tapping your TSP early could impact long-term growth.

It’s wise to build a withdrawal strategy with taxes and longevity in mind.

Best,
—FWR