As the end of the year approaches, the Thrift Savings Plan (TSP) has released its year-end transaction schedule, providing guidance on how withdrawals and required minimum distributions (RMDs) are processed and reported for tax purposes. For federal employees and retirees who are taking distributions, understanding these dates can help reduce surprises and improve tax planning.
According to the TSP’s year-end schedule, several key dates stand out:
- December 15 – Scheduled installment payments are processed and reported as income for the current tax year.
- December 18 – Remaining required minimum distributions (RMDs) for civilian, uniformed services, and beneficiary participants are processed and reported as current-year income.
- December 25 – TSP offices are closed for the federal holiday. Transactions scheduled for this date are processed on December 26 using that night’s closing share prices.
- December 29 – Withdrawals processed before noon (ET) are reported as current-year income; those processed after noon (ET) are reported as income for the following year.
- December 30–31 – All withdrawals processed on these dates are reported as income for the next tax year.
- January 1 – TSP offices are closed for the federal holiday. Transactions are processed on January 2 using that night’s closing share prices.
These deadlines are particularly important for retirees who must satisfy RMD requirements. Under current law, RMDs are required beginning at age 73 for traditional TSP balances and must be taken annually to avoid penalties. Missing or mis-timing an RMD can lead to unnecessary stress and tax consequences. Roth TSP balances, however, are not subject to RMDs during the participant’s lifetime.
Speaking of Roth TSP balances, additional flexibility is coming to the TSP. Beginning January 28, participants will be able to complete in-plan Roth conversions, allowing them to move money from traditional TSP balances into Roth TSP accounts without leaving the plan. While the converted amount is taxable in the year of conversion, the trade-off is the potential for tax-free growth and the elimination of future RMDs on those Roth dollars.
With year-end deadlines, ongoing RMD obligations, and new Roth options on the horizon, now can be a smart time for federal employees to take a step back and review their overall TSP strategy. A conversation with a Federal Retirement Consultant (FRC®) can help explain how these rules and features fit into broader retirement and tax planning goals and whether adjustments now could simplify things down the road.
