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LEARN MORE ABOUT: Thrift Savings Plans
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The Thrift Savings Plan (TSP) is a defined contribution retirement plan for federal employees and members of the uniformed services in the United States. While contributions to the TSP are made pre-tax, withdrawals from the plan are subject to tax. In this article, we will explore how the TSP is taxed in retirement.
When you retire, you have several options for withdrawing money from your TSP. You can take a lump sum, periodic payments, or purchase an annuity. Each of these options has different tax implications.
If you choose to take a lump-sum distribution, the entire amount you withdraw will be subject to federal income tax in the year you receive it. This can be a significant tax burden, especially if you have a large TSP balance.
If you opt for periodic payments, you can choose to receive them over a specific period or for the rest of your life. The amount of your periodic payments will depend on your account balance, your age, and the interest rate in effect at the time of your retirement. Only the portion of each payment that represents earnings on your contributions will be subject to tax. The portion that represents your contributions will not be taxed.
Another option is to use your TSP to purchase an annuity, which will provide you with a steady stream of income for the rest of your life. Like periodic payments, only the portion of each annuity payment that represents earnings on your contributions will be subject to tax.
It’s worth noting that if you withdraw money from your TSP before age 59 ½, you will generally be subject to a 10% early withdrawal penalty in addition to regular income tax. However, there are some exceptions to this rule, such as if you retire in the year you turn 55 or older.
In conclusion, the TSP is a valuable retirement savings plan for federal employees and members of the uniformed services. While contributions are made pre-tax, withdrawals are subject to tax. However, by choosing the right withdrawal option for your situation, you can minimize your tax burden and ensure a comfortable retirement.
Is your pension considered income on the tax bracket?
I'm 58 drawing money from my tsp … how do get tax free …?
I only put into the roth option
hi , i am 53 years old and 20 years service at VA dep . is there any way that i start taking out my TSP without that 10 % penalty ? i think I saw somewhere if i would take out in instalment fashion monthly that could be waived , even if I am not at 55 age …is that true ???? is instalment withdrawal waves the 10 % penalty for people who are not at age of 55 yet if you were at VA dep ?
Thank you for letting us know that if you move your money to an IRA from TSP prior to age 59.5 that you would then incur the 10% penalty on any future withdraws
My MRA is 57. That 10% penalty shouldn't apply to me right?
Brilliant! "Ordinary" = highest tax. You are right. I never thought of that. Evil politicians termed it as ordinary in an attempt to deceive people.
Do u recommend I take monthly payments or yearly withdrawal
How about DSR Retirees retiring at age 50, do they have to wait until 55 as well?
Very informative. Thanks
Very informative. Thanks
I have a Fidelity 401k from a company I retired from. I now work for the government and contribute to TSP. If I roll over my Fidelity account to TSP, when I do retire to a state not taxing the TSP, do all the funds now fall under no state tax.
I moved my tsp into a G fund after approval of fers disability…What should I be concerned with?..I am way under 59 yrsof age too
Are you speaking Effective Tax Rate , when you mention to have the TSP distribution taxed before you receive the distribution. Thanks so much great video.
I understand this is an older video and this question may have been asked before but I am wondering, is my TSP taxed by FICA or Medicare etc… as if its a normal Payroll income. I was previously informed my Pension is not subject to FICA taxes and such because these are not forms of "Worked" earned income and as such are only taxed federally. Can you please just as a line or two for clarification sake. Thanks
I retired under 6c retirement so not subject to 10% penalty after age 50. I am working part time now with a traditional 401k. Can I transfer the current 401k to TSP after retirement to take avoid penalty on new 401k?
What are the three options that can be used at retirement so that you don’t have to use MetLife???????
Most people in the comments need to google marginal tax rate. A higher income bracket will never result in a loss of net income. Each marginal tax rate only applies to income within that specific tax bracket. You only pay the higher rate on the money ABOVE a set amount. FOR EXAMPLE: in 2022 if you make $100,000 with your spouse, and file jointly, you pay 10% income tax on the first ~$20,000. Then you pay 12% on everything above that, up to $81,050. So even though at $100k you’re in the 22% tax bracket, ONLY $18,950 IS TAXED AT 22%. So you’re not going to owe $22,000 in taxes (22%). You will owe $13,500 for an EFFECTIVE tax rate of 13.5%.
I rolled over more than half of my tsp into and IRA. TSP then sent me a letter to tell me that my current balance was technically not going to last me more than 7 years and so they raised the tax % on my monthly distribution. Of course they are not basing this on the possible increases or decreases based on the market performance. I want to know why the increase in tax? I take $2000 out monthly which yields me $1600 Before I transferred money into the traditional IRA, the $2000 yielded me $1800 monthly.
In regards to the The Tax chart you used in the video, were those amounts for annual amounts of money taken out of tsp or are they monthly amounts?