The TSP offers several options for withdrawing the money from your account. When making your decision, it's important to think about your income needs and the lifestyle you would like to have in retirement. The approach you take to withdrawing your TSP account depends on your specific goals. Here are a few examples:
Perhaps you expect to relocate, or you need a down payment to buy a vacation home. If your plans are such that you need a portion of your TSP account right away, but want to leave the rest to continue growing, consider taking a partial withdrawal.
You are eligible to take a partial withdrawal if you did not take an age-based withdrawal while you were still employed by the Federal Government. The minimum amount you can take is $1,000 and you will only be allowed one partial withdrawal from your account.
You will owe income tax on the taxable portion of your payment and, depending on your age, you may have to pay the IRS early withdrawal penalty tax. The taxable portion of your partial withdrawal is subject to 20% mandatory withholding if not directly transferred to your IRA or other eligible plan.
For detailed information about partial withdrawals, as well the other TSP withdrawal options, visit Withdrawals After Leaving Federal Service.
By law, you will be required to take required minimum distributions (RMDs) beginning the year you turn 70½. At that time, you'll have to pay tax at your ordinary income tax rate on any taxable income you receive from your TSP account.
If you want to avoid paying taxes on the money in your TSP account for as long as possible, be sure not to take any withdrawals until the IRS requires you to do so. In addition, avoid taking amounts in excess of your annual required minimum distributions. That way, you'll continue to enjoy the tax deferral of money in your traditional balance and the compounding of earnings in your entire account.
For more information about RMDs, visit Required Minimum Distributions.
For detailed information about all of your withdrawal options, visit Withdrawals After Leaving Federal Service.
You may decide that you want income from your TSP account every month. You have a couple of options:
- If you have a specific monthly dollar amount in mind, you can indicate it when you complete your withdrawal request form. You will receive payments in the amount that you request until your entire account balance has been paid to you. Note: The amount of each monthly payment must be at least $25.
- If you want the TSP to compute a monthly amount for you based on your life expectancy, you can choose that option when you complete your request form. Your initial payment will be based on your age and your account balance at the time of the first payment. Each year thereafter, the TSP will recalculate the amount of your monthly payments based on your age and your account balance at the end of the preceding year.
For more information on TSP monthly payments as well as detailed information about all of the other TSP withdrawal options, visit Withdrawals After Leaving Federal Service.
You may have certain expenses in retirement that you know will continue throughout your lifetime. If you need a guaranteed stream of payments to cover some of those expenses, you could consider purchasing a life annuity. A life annuity is a monthly benefit that is paid to you every month for the rest of your life. The cost of an annuity depends on the type you choose and the options and features you select.
You don't have to use your entire TSP account balance to purchase the TSP annuity, but the minimum purchase amount is $3,500.
It is important that you understand the TSP annuity option because the rules and the calculations can be complicated. For more information, visit Annuities.
There are many different scenarios that may apply to your circumstances. Your withdrawal decision should also be based on whether or not you have other sources of retirement income. For example, you may have taxable investment accounts, a traditional IRA, a Roth IRA, a company pension, or other types of accounts. All of your resources should be considered when deciding on an optimal withdrawal strategy. Consider consulting a qualified financial advisor or a tax professional for help with your particular situation.
To learn more about your TSP withdrawal options, visit Withdrawals After Leaving Federal Service.