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If You’re Not Sure What to Do With Your TSP, Here’s Where to Start

todd carmack
June 3, 2025

Key Takeaways

Understanding your TSP withdrawal options in 2025 is critical to avoiding unnecessary taxes and ensuring long-term retirement income.
You don’t have to make every TSP decision at once. Start with a clear goal and timeline, then build your strategy from there.

What You Need to Know About the TSP in 2025

If you’re getting close to retirement or already retired from government service, your Thrift Savings Plan (TSP) is likely one of your largest financial assets. But deciding what to do with it can feel overwhelming. In 2025, you have more options and flexibility than ever before—which can be both a benefit and a challenge.

You might be asking yourself: Should you withdraw it all at once? Roll it over into an IRA? Take monthly payments? Keep it where it is?

This article walks you through the key starting points to help you move forward with confidence.

First Step: Understand Your Retirement Timeline

Before you touch your TSP, be clear about when you plan to retire or when you already retired. This affects everything from how and when you can access your funds to what taxes you might owe.

If you retire in the year you turn 55 (or age 50 for special category employees), you can start withdrawing without an early withdrawal penalty.
If you separate before these ages and withdraw before age 59 ½, you may owe a 10% early withdrawal penalty.
Required Minimum Distributions (RMDs) begin at age 73 in 2025 if you’re no longer working.

Knowing these timelines helps you determine whether to delay withdrawals or start using your TSP sooner.

Second Step: Know the Types of TSP Withdrawals Available

In 2025, the TSP offers multiple withdrawal methods. You can mix and match to suit your needs.

Single withdrawals: You can take out a one-time lump sum. This might make sense if you need to pay off debt or cover a large expense.
Installment payments: You can set up monthly, quarterly, or annual payments.
Partial withdrawals: Allows you to take out a portion of your TSP while leaving the rest to grow.
Annuities: The TSP offers an annuity option to provide guaranteed monthly income, though this choice is irreversible.

Each choice comes with its own tax implications and trade-offs. Take time to understand them.

Third Step: Factor In Taxes Before You Withdraw

Withdrawing from your TSP is not tax-free. How much you pay depends on the type of contributions you made:

Traditional TSP: Withdrawals are taxed as ordinary income.
Roth TSP: Qualified withdrawals are tax-free if you’re at least 59 ½ and your account is at least 5 years old.

Additionally:

Installment payments are subject to federal tax withholding unless you elect otherwise.
Single withdrawals and full transfers to IRAs are also subject to withholding.

Understanding your tax bracket now and in the future can help you decide whether to take more now or delay withdrawals.

Fourth Step: Think About Whether to Keep Your TSP or Roll It Over

Once you separate from service, you can choose to:

Leave your funds in the TSP
Roll over your balance into an IRA
Transfer your TSP to another employer’s qualified plan (if available)

Staying in the TSP has benefits like low fees and simplicity. But an IRA could offer broader investment options and more flexibility in estate planning.

If you’re undecided, you don’t have to act immediately. There’s no deadline to roll over your TSP unless you’re facing an RMD.

Fifth Step: Consider Setting Up a Withdrawal Strategy

Instead of making a one-time decision, think about your TSP as part of a long-term income plan. That plan can evolve over time.

Some considerations:

Set up monthly installments to cover basic expenses.
Use your TSP to bridge the gap before claiming Social Security.
Combine your TSP with FERS annuity and Social Security to create a diversified income stream.

In 2025, you can make changes to your installment payments at any time, giving you more control over your retirement income.

Sixth Step: Don’t Forget RMD Rules

If you turn 73 in 2025, you must start taking RMDs from your TSP unless you’re still working.

Key points:

The first RMD must be taken by April 1 of the year following the year you turn 73.
After that, annual RMDs must be taken by December 31 each year.
If you miss an RMD, you may face a 25% excise tax on the amount not withdrawn (reduced to 10% if corrected quickly).

The TSP calculates your RMD amount for you and provides distribution options.

Seventh Step: Plan for Long-Term Healthcare and Inflation

Your TSP might need to support you for 20 to 30 years or more. That means you need to plan for increasing costs.

Things to think about:

Healthcare: Out-of-pocket costs may rise even if you have FEHB or Medicare.
Inflation: Your buying power will likely decrease over time. Invest part of your TSP to keep pace with inflation.
Longevity: Don’t underestimate your life expectancy. Many retirees live into their 90s.

A conservative withdrawal strategy and well-diversified portfolio can help your TSP last longer.

Eighth Step: Check Beneficiary Designations and Estate Plans

TSP doesn’t follow your will. It pays directly to the beneficiaries on file.

So:

Review and update your beneficiary form regularly.
Understand that TSP will not recognize divorce decrees or wills that conflict with your form.
Consider how your TSP fits into your overall estate plan.

In 2025, digital beneficiary updates are available, making it easier to manage your designations.

Ninth Step: Seek Professional Guidance Before Making Major Moves

TSP decisions aren’t easy to reverse. Before you initiate a rollover, purchase an annuity, or schedule large withdrawals, speak with a financial professional who understands public sector retirement.

A licensed agent can help you evaluate your entire retirement picture, including:

Pension income
Social Security timing
Tax strategies
Estate planning

You don’t have to do this alone. Professional help now can prevent costly mistakes later.

The Smart Way to Approach Your TSP

If you’re not sure what to do with your TSP, don’t feel rushed. Start with a clear picture of your timeline, understand your withdrawal options, and factor in taxes and RMDs. Build a flexible income plan, and revisit it regularly.

Your TSP can provide financial security for decades—if used wisely.

For guidance tailored to your situation, speak with a licensed agent listed on this website who can help you make informed choices about your TSP and overall retirement plan.

Todd Carmack

Todd Carmack grew up in Dubuque, Iowa, where he learned the concepts of hard work and the value of a dollar. Todd spent years in Boy Scouts and achieved the honor of Eagle Scout. Todd graduated from Iowa State University, moved to Chicago, spent a few years managing restaurants, and started working in financial services and insurance, helping families prepare for the high cost of college for their children. After spending years in the insurance industry, Todd moved to Arizona and started working with Federal Employees, offing education and options on their benefits. Becoming a Financial Advisor / Fiduciary can help people properly plan for the future. Todd also enjoys cooking and traveling in his free time.

Disclosure: Investment advisory services are offered through BWM Advisory, LLC (BWM). BWM is registered as an Investment Advisor located in Scottsdale, Arizona, and only conducts business in states where it is properly licensed, notice has been filed, or is excluded from notice filing requirements. This information is not a complete analysis of the topic(s) discussed, is general in nature, and is not personalized investment advice. Nothing in this article is intended to be investment advice. There are risks involved with investing which may include (but are not limited to) market fluctuations and possible loss of principal value. Carefully consider the risks and possible consequences involved prior to making any investment decision. You should consult a professional tax or investment advisor regarding tax and investment implications before taking any investment actions or implementing any investment strategies.