Why does the IRS mandate Required Minimum Distributions (RMDs) from your traditional Thrift Savings Plan (TSP) once you hit 73? Simply put, it’s all about taxes. The RMD regulations ensure that individuals don’t utilize tax-deferred retirement savings accounts to dodge paying the income taxes they owe.
Recent Updates to RMD Age Requirements
As of January 1, 2023, the SECURE Act 2.0 raised the RMD age to 73 for individuals born after December 31, 1950. Moreover, commencing in 2033, the RMD age will further increase to 75. Notably, effective January 1, 2024, Roth TSP balances are exempt from RMDs. Presently, here are the RMD guidelines for withdrawals from your traditional TSP during retirement:
If you don’t initiate withdrawals from your TSP account upon turning 73, the TSP is mandated to make the required distribution to you by April 1 of the subsequent year. If you separate from federal service post the age of 73, your account immediately becomes subject to IRS minimum distribution requirements.
If you’re already receiving installment payments from your TSP upon turning 73, the total amount will be utilized to fulfill the minimum distributions requirement. Should the total amount fall short, the TSP will issue a supplemental payment for the remaining amount.
“You must take your RMD before completing any rollover.”
Understanding TSP Rollovers at 73
While the age threshold for RMDs may seem straightforward, things can get intricate if you’re 73 and contemplating a rollover from your TSP to an IRA.
If you’re retired, it’s imperative to fulfill your RMD before executing any rollover. Failure to do so means the rollover amount is deemed an excess contribution to your IRA, subject to penalties. Can you transfer your RMD to an IRA? No. According to IRS regulations, you must satisfy the RMD before any transfer occurs.
t’s crucial to note that RMDs from your TSP account aren’t mandatory if you’re still employed. Therefore, if you’re 73 and actively working, you could roll over funds from your TSP to a traditional IRA without facing an excess contribution penalty and associated taxes.
If this process appears convoluted, you’re not alone. This is why it’s essential to collaborate with an FRC® trained advisor who comprehensively understands your federal benefits. At 73 and subject to RMDs, making decisions regarding rollovers isn’t something you should attempt solo.
