Required Minimum Distributions from the TSP Can Derail Your Strategy—Unless You Plan Now

Key Takeaways

• You must begin taking Required Minimum Distributions (RMDs) from your Thrift Savings Plan (TSP) starting at age 73 in 2025 unless you are still employed by the federal government.

• Without proper planning, RMDs can lead to increased taxable income, higher Medicare premiums, and disruption of your long-term retirement income strategy.

Understanding RMDs and the TSP

The Thrift Savings Plan (TSP) is a critical component of your federal retirement. While it serves as a tax-deferred growth vehicle throughout your working years, its rules change significantly once you reach your early 70s. In 2025, the Required Minimum Distribution (RMD) age is 73, reflecting recent legislative changes.

• Also Read: Divorce and Your Federal Pension—What Happens When You Split Assets and How It Could Affect Your TSP
• Also Read: What Happens to Your Federal Benefits After Divorce? Here’s the Lowdown
• Also Read: The Best FEHB Plans for 2025: Which One Fits Your Lifestyle and Budget the Best?

If you fail to withdraw the full RMD, you face a 25% penalty on the amount not taken, reduced to 10% if corrected promptly.

When RMDs Start and Who Is Affected

RMDs from the TSP begin in the year you turn 73. However, if you are still employed by the federal government in that year, your RMDs can be delayed until April 1 of the year after you separate from service. This is known as the “still working exception.”

If you retired before reaching age 73, your first RMD must be taken by April 1 of the year following your 73rd birthday. Subsequent RMDs are due by December 31 each year.

Calculating Your TSP RMD

The RMD amount is based on your TSP account balance as of December 31 of the previous year and a life expectancy factor from IRS Uniform Lifetime Tables.

For example, if your balance on December 31, 2024, was $500,000 and your life expectancy factor for age 73 is 26.5, your 2025 RMD would be approximately:

• $500,000 / 26.5 = $18,867.92

TSP automatically calculates and distributes your RMD annually if you do not set up a withdrawal plan that satisfies it. However, this doesn’t mean the distribution is optimized for your tax or income strategy.

Impact of RMDs on Your Retirement Plan

While RMDs are mandatory, how you manage them is up to you. Without coordination, RMDs can conflict with your financial goals:

• Increased Taxable Income: RMDs count as ordinary income. Depending on your total income, they can push you into a higher tax bracket.

• Higher Medicare Premiums: Medicare Part B and D premiums are income-adjusted. RMDs can cause your income to exceed thresholds, leading to higher premiums under IRMAA (Income-Related Monthly Adjustment Amount).

• Disruption to Your Withdrawal Strategy: If you had a conservative withdrawal plan (e.g., 3% annually), your RMD may force you to withdraw more than needed, impacting investment longevity.

Coordinating TSP RMDs with Other Income Sources

Most public sector retirees rely on a combination of FERS pension, Social Security, and TSP. Some also hold IRAs or other retirement accounts. RMDs affect how all of these pieces fit together:

• FERS Annuity: This provides steady monthly income. Because it’s a fixed stream, your RMDs can layer more income on top—pushing your tax burden higher.

• Social Security: RMDs can cause up to 85% of your Social Security to be taxable, depending on your total income.

• Other Retirement Accounts: RMDs apply separately to each type of account (e.g., traditional IRA vs. TSP), but IRAs can be aggregated. Not so with TSP.

To stay efficient, consider whether consolidating accounts or drawing from other sources before RMD age can reduce the impact.

Options to Minimize RMD Disruption

You can’t avoid RMDs entirely unless you’re still working for the government. But you can manage their impact through a range of strategies:

1. Begin Voluntary Withdrawals Early

Starting withdrawals before RMDs are required can help you:

• Smooth out your taxable income across multiple years

• Lower your account balance by age 73, reducing future RMDs

This is especially effective if you retire in your early to mid-60s and have low income before Social Security begins.

2. Consider Roth Conversions

TSP does not allow in-plan Roth conversions, but you can roll over portions of your TSP into a traditional IRA, then convert to a Roth IRA.

• Roth IRAs are not subject to RMDs while you’re alive.

• Converting in lower-income years can reduce future taxable income and RMDs.

3. Use TSP Monthly Withdrawals Wisely

You can set up fixed or life-expectancy-based monthly payments from your TSP. If structured carefully, these payments can satisfy your RMD while also aligning with your retirement budget.

• The life-expectancy method adjusts yearly to satisfy the IRS.

• Fixed-dollar payments must at least meet the RMD amount for that year.

Special Rules for Beneficiaries

If you pass away with funds still in your TSP, beneficiaries must follow their own RMD rules:

• Spousal beneficiaries can transfer the account into their own retirement plan and delay RMDs until they reach 73.

• Non-spouse beneficiaries are generally required to empty the account within 10 years, as per the SECURE Act.

Planning for this transition is important to avoid unintended tax consequences for your heirs.

TSP Modernization and Withdrawal Flexibility

Thanks to the TSP Modernization Act (implemented in 2019), you now have greater control over how you withdraw money:

• Unlimited partial withdrawals after separation

• Separate withdrawal choices for Roth and traditional balances

• Option to change monthly payments once a year

While these changes give you flexibility, they also place more responsibility on you to ensure RMD compliance.

Mistakes to Avoid

1. Ignoring the April 1 Deadline

If you turn 73 in 2025 and have already retired, your first RMD is due by April 1, 2026. Failing to take this on time could trigger penalties.

2. Misunderstanding the TSP’s Role

Your TSP does not automatically account for withdrawals from other IRAs or plans. RMD rules apply individually to the TSP.

3. Overlooking Tax Bracket Creep

Taking your RMD on top of pension and Social Security income may cause more of your income to be taxed at higher rates.

Planning Now for a Smoother Distribution Phase

The earlier you start planning, the more control you have. Here are some practical steps:

• Review your estimated RMDs starting at age 73 using online tools or calculators.

• Create a retirement income timeline that layers your pension, Social Security, and RMDs.

• Assess the potential for Roth conversions during low-income years.

• Talk to a tax advisor about coordinating your withdrawals to reduce long-term tax liability.

• Ensure your TSP withdrawal choices meet or exceed your required minimum.

Your Long-Term Strategy Depends on Proactive RMD Planning

RMDs are often treated as an afterthought, but they have serious implications for your tax bill, healthcare costs, and retirement longevity. Taking action now—before you’re required to act—can keep your retirement income stable, efficient, and aligned with your goals.

To make confident choices about your TSP withdrawal plan, taxes, and retirement income strategy, get in touch with a licensed agent listed on this website for personalized guidance.