When it comes to taking distributions from your traditional Thrift Savings Plan (TSP) in retirement, you have a number of options. You can take a single withdrawal when you need it ($1,000 minimum). Or, you can set up monthly, quarterly, or once per year installment payments. Of course, all TSP withdrawals are subject to income taxes.
Then again, depending on your financial situation, you may want to avoid paying taxes by not taking any TSP distributions until you’re required to at age 72 under IRS law. Known as Required Minimum Distributions (RMDs), it’s important to understand how your Required Beginning Date (RBD) works.
Your RBD Is April 1st Of The Year After Your 72nd Birthday
You don’t have to take your first required distribution until April 1st of the year after your 72nd birthday. This is considered your TSP Required Beginning Date or your First Distribution Calendar Year. For example, if you turn 72 in April of 2022, you need to take your first RMD by April 1st of 2023.
However, the April 1st date only applies to your first distribution. You have to take your second RMD by December 31st of that same year. After your First Distribution Calendar Year, subsequent RMDs must be taken by December 31st, every year.
How Your RMD Is Calculated
The amount of your RMD is based on your age and life expectancy using the Uniform Lifetime Table. You can go the IRS.gov website and download the “Required Minimum Distribution Worksheet” to determine the amount of your first RMD at age 72. The combined balance of your Traditional and Roth TSP accounts as of December 31st of each year is used to determine your RMD for the following year.
“Distributions from the traditional portion of your TSP account are 100% taxable. When added to other taxable income, two RMDs in one year can bump you into a higher tax bracket.”
Tax Considerations In Your First Distribution Calendar Year
Though you’re not required to take your first RMD until April 1st of the year after your turn 72, it may make more sense to take your first RMD as soon as your 72nd birthday. Otherwise you’ll be taking two RMDs in your First Distribution Calendar year. Distributions from the traditional portion of your TSP account are 100% taxable. When added to other taxable income, two RMDs in one year can bump you into a higher tax bracket. This can also make a larger portion of your Social Security income taxable.
This is why tax-planning is a crucial component of your overall retirement strategy. Touch base with an FRC® trained advisor to learn more about TSP withdrawal strategies that can help lower your tax burden.
