Navigating the complexities of the Thrift Savings Plan (TSP) can be unexpectedly challenging when you leave your service, particularly due to the administrative processes involved. It may take up to 30 days for the TSP to be informed of your retirement, during which time your funds remain inaccessible. Once the TSP is notified, your online account gains “separation access,” allowing you to begin withdrawal requests.
Managing TSP Loans Upon Retirement
Upon departure from service, TSP rules require any outstanding loans to be repaid within 90 days. Failing to meet this deadline converts the loan balance into a TSP distribution, subjecting you to federal income taxes on the outstanding amount. It’s important to note that an unresolved TSP loan may affect your withdrawal requests, and residents in states taxing TSP distributions as income will face additional tax implications.
Initiating TSP Withdrawals in Retirement
Unfortunately, the TSP may take an extra 60 days to process your initial payment after retirement. To start a withdrawal, access “My Account” on the TSP website, navigate to “Withdrawals and Changes to Installment Payments,” and select “Withdrawal Request for Separated and Beneficiary Participants.” Follow the prompts, typically completing the process online.
Tax Considerations for TSP Withdrawals in Retirement
During your career, contributions to a traditional TSP were tax-deferred. Upon retirement, every dollar withdrawn becomes fully taxable, with the TSP usually withholding a portion for federal income taxes. For Roth TSP, tax-free withdrawals on contributions and qualified earnings are possible under specific conditions, including a waiting period of 5 years from the first contribution made after January 1st and meeting age or disability criteria. Otherwise, taxes apply only to Roth TSP earnings.
TSP Required Minimum Distributions (RMDs)
The SECURE Act 2.0 raised the RMD age to 73 for individuals born after December 31, 1950, and it will increase to 75 starting in 2033. Notably, the legislation eliminated RMDs on Roth TSP accounts from January 1, 2024, onwards.
Recognizing the Time Delay in TSP Distributions
Receiving your first TSP distribution post-retirement entails a significant time frame. Connect with an FRC® trained advisor to develop a plan that effectively covers your expenses during this delay, ensuring a smooth transition into retirement.
