As you embark on the journey of taking distributions from your Thrift Savings Plan (TSP) in retirement, a comprehensive understanding of your options is vital for crafting the optimal strategy aligned with your lifestyle.
Adjustments to TSP RMDs Under the SECURE Act 2.0
The age for Required Minimum Distributions (RMDs) from your traditional TSP underwent changes with the SECURE Act 2.0, signed into law under President Biden in 2022. Notably, the RMD age was elevated to 73 for those born after December 31, 1950, effective from January 1, 2023. Starting from January 1, 2024, Roth TSP balances are exempt from RMDs, with only traditional TSP balances factored into RMD calculations. Looking ahead, the RMD age is slated to rise to 75 from 2033 onwards. It’s essential to bear in mind that traditional TSP distributions are taxed as ordinary income in the year of withdrawal.
Exploring TSP Distribution Options
You have the flexibility to employ various distribution methods, individually or in combination:
1. Partial Distribution: Opt for a partial distribution, even if you’re already receiving TSP installment payments. The minimum amount for partial distributions is $1,000, with a limitation of one per 30-day period.
2. Total Distribution: Withdraw the entirety of your TSP account balance, reducing it to $0. However, this choice precludes any further contributions to the TSP from eligible plans, and TSP installment payments cease.
3. Installment Distributions: Utilize the “Model Installments” feature within the “Withdrawals and Distributions” section on your TSP Account. This tool allows you to simulate various installment scenarios before making a decision. Choose a fixed amount (minimum $25), or let the TSP compute installments based on IRS life expectancy tables.
4. TSP Funds for Annuities: Consider using TSP funds to purchase the TSP Life Annuity, an insurance product from MetLife providing a lifetime income stream. However, alternative annuity options from private insurance companies may offer better payouts and customizable riders tailored to your needs.
Tax Implications
Keep in mind that withdrawals from traditional TSP accounts are subject to ordinary income tax in the year of withdrawal. For a comprehensive understanding, we recommend downloading the TSP Distributions Pamphlet.
Additionally, you have the option to consult with an FRC® trained advisor to explore and tailor the most suitable TSP withdrawal strategy based on your unique financial circumstances.
