Required Minimum Distributions (RMDs) are the minimum amount that you must withdraw yearly from your tax-deferred retirement accounts starting at age 72. As a federal retiree, RMDs from your Thrift Savings Plan (TSP) are relatively straightforward. The TSP calculates what you owe and helps you avoid hefty IRS penalties by sending your RMD on time.
However, if you own other retirement accounts from private sector employment, it’s up to you to get it right when it comes to RMDs. In addition to the TSP, tax-deferred retirement accounts include:
- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- 401(k) plans
- 403(b) plans
- 457(b) plans
- Profit sharing plans
- Other defined contribution plans
RMDs When You Continue To Work Beyond Age 72
When you continue to work for the government beyond age 72, you’re not required to take your first TSP RMD until April 1st in the year you retire from federal service. However, if you own other retirement accounts like a 401(k), 403(b) and/or a traditional IRA, you must take separate RMDs from each account no later than the April 1st of the year after you turn 72.
The reason: under IRS rules, most tax-deferred retirement plans allow you to postpone RMDs from a current employer’s plan but plans from prior employers are usually subject to the RMD requirement.
“For example: if you have a 401(k) plan in addition to a TSP, once you turn 72, you can’t take an RMD from just one of those accounts to cover both.”
Withdrawing RMDs From The Wrong Accounts
When federal employees or retirees own other retirement accounts like a 401(k) or traditional IRA, they must take an RMD from each retirement account, every year. For example: if you have a 401(k) plan in addition to a TSP, once you turn 72, you can’t take an RMD from just one of those accounts to cover both. However, this does not apply to inherited IRAs which have different RMD rules.
Combining RMDs With A Spouse’s Tax-Deferred Retirement Account
For married couples, there are a number of financial assets that are owned jointly but retirement accounts are always owned individually. As a result, IRS rules for RMDs apply to each retirement account owned by each spouse. This can be confusing for couples who file their taxes jointly. They mistakenly assume an RMD taken from one spouse’s account satisfies the RMD due on the other’s account. Then the spouse who did not take the RMD owes a 50% “excess accumulation” penalty while the other spouse ends up paying more taxes than necessary.
To learn more about RMDs, consider working with an FRC® trained advisor who fully understands your federal benefits.
