Before you start taking distributions from your Thrift Savings Plan (TSP) in retirement, it’s important to understand all of your options to develop the best strategy for your lifestyle.
The SECURE Act 2.0 Raised The Age For TSP RMDs
You don’t have to take any TSP distributions until you reach the age for Requited Minimum Distributions (RMDs) from your traditional TSP. One of the changes under President Biden’s 2022 SECURE Act 2.0 was raising the age for RMDs to give your TSP investments more time to grow:
- As of January 1, 2023, the age for RMDs was raised to 73 for those born after December 31, 1950.
- Starting on January 1, 2024, Roth TSP balances are no longer subject to RMDs and your RMD calculation will only include your traditional TSP balance.
- Starting in 2033, the age for RMDs will increase to age 75.
“Remember, traditional TSP distributions are taxed as ordinary income in the year you make the withdrawal.”
You Have 4 Options For TSP Distributions
You can use one or any combination of the following distribution methods:
Partial Distribution: You can take a partial distribution even if you’re receiving TSP installment payments. Partial distributions must be at least $1,000. There is no limit to the number of partial distributions you can take but the TSP will not process more than one in a 30-day period.
Total Distribution: You can withdraw all of your money from your TSP account bringing your balance to $0. However, you won’t be able to to move money into the TSP from eligible plans. Of course, any TSP installment payments will also stop.
Installment Distributions: Log into your TSP Account and use the “Model Installments” option in the “Withdrawals and Distributions” section. This tool enables you to model different installments before making a decision. You can also submit your installment request with this tool. Essentially, you can choose a fixed amount as long as it’s at least $25. Or, the TSP can compute your installments based on the IRS life expectancy tables.
You Can Use TSP Funds To Buy An Annuity: The Thrift Savings Plan (TSP) Life Annuity is an insurance product from MetLife that provides a steam of income for the rest of your life. However, it’s not your only option. Other private insurance companies offer different types of annuities that may provide a better payout plus riders that can be customized for your needs.
Remember, traditional TSP distributions are taxed as ordinary income in the year you make the withdrawal. For complete information, download this TSP Distributions Pamphlet. You can also connect with an FRC® trained advisor to discuss the best TSP withdrawal strategy for your financial situation.
