Have a TSP Withdrawal Plan in Place When You’re Ready to Retire

by | Jan 3, 2018

Last Updated October 25, 2022


We’re entering the peak season of federal employees filing for retirement. January and February are historically the months where the Office of Personnel Management receives the highest number of retirement claims. Along with filing for retirement, federal employees also file withdrawal elections for payments from their Thrift Savings Plan accounts. It’s important to have a aTSP withdrawal plan in place to properly financially prepare for retirement.

Many employees file for retirement benefits under CSRS and FERS way before their planned retirement date. On the other hand, TSP can’t process a post-separation withdrawal form until they have been notified by your agency’s payroll office that you no longer work there.

The earliest you should submit a TSP withdrawal request is about 30 days after your retirement date. These 2 forms can be used for post-separation withdrawals:

Besides waiting at least 30 days before submitting your withdrawal request. The following tips can help you with your withdrawal plan:

  • Consider the benefit of taking payments from your TSP rather than transferring your TSP funds to an IRA or another annuity account.
  • The TSP Modernization Act was recently signed into law; however, it’ll be awhile before changes are implemented. TSP prepared a Q&A to help explain this. A quote from the Q&A said, “By the way, in addition to the changes made by the new law, we’re also adding the ability to specify how much of your withdrawal should be Roth and how much should be traditional; withdrawal currently come out pro rata from both sources.”
  • Per TSP, if you have an account balance when the new rules take effect, you will be able to take advantage of the new withdrawal options, even if you’ve already begun receiving monthly payments or have taken a partial withdrawal before then.
  • Once the new rules become effective, separated employees will be able to elect multiple partial withdrawals even if they are already receiving monthly payments. Currently, separated employees can opt to take a one-time partial distribution of their TSP account balance.
  • Earnings associated with after-tax Roth TSP contributions are paid tax-free only when 5 years have passed since January 1 of the calendar year in which you made your first Roth contribution, and you have reached age 59 ½ or have a permanent disability.
  • You have 3 options for withdrawal: single payment, monthly payments, or life annuity.
  • A full withdrawal doesn’t mean you to withdrawal the entire balance in one lump sum.

Required Minimum Distributions

If you are past age 70 ½ at the time your separate from federal service, you must begin required minimum distributions from your TSP account. TSP will notify you to begin monthly payments or elect another withdrawal option to avoid penalties for not making a required election. If you don’t make a withdrawal election by the required deadline, your account balance will be forfeited to TSP. You may reclaim your balance, but it will not accumulate earnings after its forfeited.

An important note to keep in mind is if your TSP account record has an incorrect birth or separation date, or if your agency is late reporting the date of your separation date, you may not receive a satisfying RMD by the applicable deadline. In this case, the IRS could slap you with a penalty tax of 50% on the amount that wasn’t paid to you on time.

If you retire on December 31, 2017, and are 70 ½ when you separate, TSP is required to pay the 1st RMD by April 1, 2018. If you don’t make a withdrawal, TSP will pay the RMD in March 2018. TSP will also ensure the amount you withdrawal satisfies the RMD if you make a withdrawal.

By retiring just 1 day later (January 1), the RMD is delayed until April 1, 2019. This is helpful because it doesn’t force you to make a withdrawal decision quickly. You also don’t have to take all the money out at once to satisfy an RMD. If your withdrawal election doesn’t meet the RMD threshold for 2018, TSP will issue a supplemental payment in December 2018 that ensures you have satisfied the 2018 RMD.

It also takes TSP weeks to distribute your withdrawal to you. Keep these things in mind when retiring to ensure that you don’t go months with no cash flow.

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