If you've separated from the Federal Government or the uniformed services and have decided to leave your money in the TSP, there are a few things to keep in mind.
- Limitations on Leaving Your Money in the TSP
- Your TSP Full Withdrawal Options
- Changing Your Investment Mix
- Tax Consequences
- Early Retirement
There are significant benefits to leaving your money in the TSP including very low administrative expenses, multiple investment options, the ability to transfer funds from IRAs or eligible employer plans to your TSP account, and continued tax deferral on traditional contributions and their earnings. However, you should be aware of the TSP rules that apply to you while you are in retirement.
Deadline to Start Withdrawing Your TSP Account
If you are separated from Federal service or the uniformed services, you will be required to start withdrawing your money by April 1 of the year following the year you turn age 70½.
For example, if you are age 45 and separate from service this year you would be required to begin a full withdrawal election from your TSP account no later than April 1 of the year after the year you turn age 70½.
If you are not separated from Federal service or the uniformed services when you reach age 70½, you may continue to contribute to the TSP and you will be required to start withdrawing your money by April 1 of the year following the year you separate from Federal service or the uniformed services.
For example, if you are age 74 and separate from service on December 31 of this year, you would be required to begin a full withdrawal election from your TSP account no later than April 1 of next year.
For more information about the withdrawal deadline as well as the consequences of missing the deadline, visit Account Withdrawal Deadline.
Required Minimum Distribution (RMD) Rules
In addition to the TSP withdrawal deadline, the Internal Revenue Service (IRS) requires that you receive a certain portion of your account each year based on your life expectancy. The TSP will notify you before your required withdrawal date and mail you important tax information about your TSP withdrawal along with information about the IRS minimum distribution requirements. You can find more detailed information about RMDs by visiting Required Minimum Distributions.
Contributions, Loans, In-Service Withdrawals, and Court Orders
While in retirement from Government service, you can no longer make contributions to your TSP account, take out TSP loans, or request in-service withdrawals. Also, all court orders against your TSP account must be resolved before you can make a withdrawal.
When you are ready to withdraw your TSP account or have reached the date by which you must make a withdrawal election, there are a number of ways you can do so. You can choose:
- A single payment;
- A series of monthly payments that are either a specific dollar amount or computed based on your life expectancy;
- A life annuity; or
- A mixed withdrawal (a combination of any two, or all three, of the full withdrawal options).
For detailed information on your withdrawal options, specific tax consequences, withdrawal change requests, and special withdrawal considerations, visit Withdrawals After Leaving Federal Service.
While in retirement, you can change the proportions of your TSP account balance that are invested in the TSP funds by making interfund transfers (IFTs). However, you will be subject to the IFT rules limiting the number of certain types of transfers allowed each month.
When you withdraw your money from the TSP, the tax rules that apply depend on type of money that is included in your withdrawal payment.
For detailed information about the tax consequences associated with the different types of TSP withdrawal options, visit Withdrawals After Leaving Federal Service.
If you receive a TSP withdrawal payment before you reach age 59½, in addition to the regular income tax, you may have to pay an early withdrawal penalty tax equal to 10% of any taxable portion of the payment that is not transferred or rolled over. However, if you separate from service during or after the year you reach age 55 (or the year you reach age 50 if you are a public safety employee as defined by section 72(t)(10)(B)(ii) of the Internal Revenue Code), then the 10% early withdrawal penalty tax does not apply.