The intricacies of the Thrift Savings Plan (TSP) may catch you off guard when you separate from service, as it can take up to 30 days for the TSP to be notified of your retirement. During this period, your funds remain inaccessible. Once the TSP receives notification, your online account gains “separation access,” allowing you to initiate withdrawal requests.
Managing TSP Loans Upon Retirement
When departing from service, TSP regulations dictate that any outstanding loan must be repaid within 90 days. Failing to meet this deadline transforms the loan balance into a TSP distribution, subjecting you to federal income taxes on the outstanding amount. It’s crucial to note that an unresolved TSP loan may impact your withdrawal requests, and residents in states taxing TSP distributions as income will face additional tax implications.
Initiating TSP Withdrawals in Retirement
Regrettably, the TSP may take an additional 60 days to process your initial payment after retirement. To commence 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 provided prompts, with the convenience of completing the entire process online in most cases.
Tax Considerations for TSP Withdrawals in Retirement
Throughout your career, contributions to a traditional TSP were tax-deferred to alleviate your tax burden. Upon retirement, every dollar withdrawn from your traditional TSP becomes fully taxable, with the TSP typically withholding a portion for federal income taxes.
In the case of a Roth TSP, tax-free withdrawals on contributions and qualified earnings are possible if two conditions are met: a minimum of 5 years has elapsed since your first Roth TSP contribution made on or after January 1st, and you are at least 59½ years old or permanently disabled. Failure to meet these criteria results in taxes only on Roth TSP earnings.
TSP Required Minimum Distributions (RMDs)
The SECURE Act 2.0 has elevated the RMD age to 73 for individuals born after December 31, 1950, and it will further rise to 75 starting in 2033. Notably, the new legislation abolished RMDs on Roth TSP accounts from January 1, 2024, onwards.
Recognizing the Time Delay in TSP Distributions
As evident, receiving your first TSP distribution post-retirement involves a considerable time frame. Connect with an FRC® trained advisor to craft a plan that effectively covers your expenses during this delay, ensuring a seamless transition into your retirement years.
