Tax Implications of the TSP Rule of 55 While the Rule of 55 allows you to avoid the 10% early withdrawal penalty, your TSP withdrawals are still subject to ordinary income tax. This means the amount you withdraw will be taxed based on your income bracket for the year. There is also a mandatory 20% federal tax withholding on eligible TSP withdrawals, unless you elect a different with... https://www.federalpensionadvisors.com/post/tsp-rule-of-55