How RMDs Are Quietly Reshaping TSP Withdrawal Strategies for Federal Retirees in 2025

Key Takeaways

• Required Minimum Distributions (RMDs) in 2025 are reshaping how federal retirees need to plan TSP withdrawals to avoid large tax burdens and ensure their money lasts.

• Strategic timing, careful calculation, and understanding the updated RMD rules can lead to better retirement income management and minimize financial stress.

Understanding Required Minimum Distributions in 2025

• Also Read: 4 Reasons Why Medicare Could Be a Smarter Choice Than FEHB for Some Federal Retirees
• Also Read: Leaving Your TSP Alone Can Be Risky—Especially If You’re Already Retired
• Also Read: FERS Pension Gone? Here’s What Really Happens If You Resign Tomorrow

If you have a Thrift Savings Plan (TSP) and are entering retirement, the concept of Required Minimum Distributions (RMDs) has likely moved from the back of your mind to the forefront. As of 2025, RMD rules remain a critical pivot point in retirement planning. Once you turn 73, the IRS requires you to start withdrawing a minimum amount each year from your TSP.

The RMD age shifted to 73 in 2023, and it remains that way in 2025. If you turned 73 this year or earlier, you are now under an obligation to start RMDs or face substantial tax penalties—up to 25% of the amount you should have withdrawn but didn’t.

Why RMDs Are Quietly Changing TSP Strategies

In past years, many retirees took voluntary TSP withdrawals based only on personal income needs. Now, with mandatory RMDs, you must factor IRS rules into your withdrawal strategy whether you need the money or not.

Several factors make RMDs a force you can’t ignore in 2025:

• Tax Impact: RMDs are considered taxable income, potentially pushing you into a higher tax bracket.

• Withdrawal Sequencing: Without a plan, you could be forced to sell TSP investments at inopportune times.

• Longevity Risk: Taking more than you need could leave your portfolio vulnerable in later retirement years.

How Your First RMD Timing Works in 2025

The IRS gives you some flexibility for your first RMD. If you turn 73 in 2025, you have until April 1, 2026, to take your first RMD. However, waiting could mean taking two distributions in the same year—one for 2025 and one for 2026—potentially doubling your taxable income.

Here’s the basic timeline:

• Turn 73 in 2025?

  • First RMD due by April 1, 2026.

  • Second RMD (for 2026) due by December 31, 2026.

Managing these dates carefully can help you avoid unintended tax spikes.

Calculating Your RMD from TSP in 2025

RMDs are calculated using the IRS Uniform Lifetime Table. The basic formula for your TSP RMD in 2025 is:

Account Balance (as of December 31, 2024) ÷ Life Expectancy Factor (from IRS table)

Some key points to remember:

• Your TSP account balance used for calculation is frozen as of December 31, 2024.

• Life expectancy factors decrease as you age, meaning RMDs get larger as a percentage of your account over time.

• The TSP automatically calculates and sends your RMD if you have not withdrawn enough.

New Challenges Federal Retirees Face with RMDs in 2025

The 2025 environment brings specific pressures you need to be ready for.

1. Higher Inflation Adjustments

Recent inflation rates mean cost-of-living increases in pensions and Social Security. But higher income may also cause your RMDs to push you over important tax thresholds, including:

• Higher federal income tax brackets

• Increased Medicare Part B and D premiums (Income-Related Monthly Adjustment Amounts)

2. Changing Investment Conditions

TSP participants are facing a different market compared to pre-2020 retirees. With fluctuating returns in the G Fund, C Fund, and others, mandatory withdrawals could force you to sell assets during downturns if not properly planned.

3. Increased Longevity Risk

Federal retirees in 2025 are likely to live longer than previous generations. Taking too much too early, because of RMD requirements, increases the risk of running out of money later in life.

Smart Moves to Manage RMDs from TSP in 2025

Avoiding major problems with your TSP withdrawals starts with proactive planning. Consider the following moves to align RMDs with your financial goals.

Review Your TSP Investment Allocation

If you are approaching or already in RMD age, it’s important to have:

• Sufficient liquidity in your TSP to meet RMDs without selling high-risk assets during downturns.

• Diversification to balance growth and safety.

Rebalancing within TSP funds (e.g., moving more into G or F Funds) can help provide the needed cash flow.

Consider Timing Your First Withdrawal Carefully

If delaying your first RMD until April 1 of the following year will double your taxable income, you might instead want to:

• Take your first RMD during the year you turn 73.

• Smooth your taxable income across years.

This decision depends on your overall income, other retirement account balances, and expected tax rates.

Use Strategic Partial Withdrawals

Rather than waiting until the TSP automatically sends your RMD, you can:

• Set up scheduled partial withdrawals.

• Align withdrawals with your spending needs.

• Withdraw slightly more than the RMD amount to maintain flexibility.

Scheduled withdrawals ensure you are in control, not reacting to TSP auto-payments.

Watch Your Medicare Premiums

Medicare premiums are impacted by your Modified Adjusted Gross Income (MAGI). A higher MAGI due to RMDs could mean higher premiums two years later.

Monitor these thresholds annually to manage your overall healthcare costs effectively.

Plan for Beneficiary Impact

Your TSP RMD strategy can also impact your heirs:

• Inherited TSP accounts now generally require withdrawal within 10 years.

• Larger RMDs now may reduce the tax burden your beneficiaries face later.

Working this into your estate planning is critical to preserving more of your legacy.

Common Missteps to Avoid with TSP RMDs

Even small mistakes can create costly problems. Here are some missteps to avoid in 2025:

• Ignoring RMD Notifications: TSP notifies participants, but you must act to avoid penalties.

• Forgetting About Other Accounts: If you have IRAs in addition to TSP, each type of account requires a separate RMD.

• Misunderstanding Roth TSP Rules: Roth TSP accounts are subject to RMDs (unlike Roth IRAs). However, you can avoid this by transferring Roth TSP funds to a Roth IRA before RMD age.

The Big Picture: RMDs Are More Than Just a Rule

RMDs aren’t just an IRS requirement—they shape your overall retirement plan. In 2025, they demand greater coordination between your TSP, Social Security, pensions, and other income sources. Thinking ahead gives you the power to:

• Minimize taxes

• Extend the life of your savings

• Manage healthcare costs

• Protect your heirs

What You Should Do Next About Your TSP RMDs

If you are turning 73 this year, or if you are already past that age, reviewing your withdrawal plan should be a top priority. TSP withdrawals tied to RMDs in 2025 can easily become a stress point without the right guidance.

Getting a customized strategy can help you:

• Assess whether to start withdrawals early.

• Determine how much to withdraw above the RMD.

• Balance income needs with tax efficiency.

• Make sure your investment choices support smooth withdrawals.

For personalized assistance, consider speaking with a licensed professional listed on this website to create a withdrawal strategy that fits your full retirement picture.