When a federal worker retires from federal service, the retired worker has a number of choices to withdrawing their Thrift Financial savings Plan (TSP) accounts. This column is the primary of 4 columns discussing TSP withdrawal choices for retired TSP individuals and can current the partial TSP distribution withdrawal choice.
Upon retiring from federal service, a TSP participant can instantly withdraw from his or her conventional TSP account, Roth TSP account, or a mix of each accounts. The retired TSP participant can request at any time a partial distribution of no less than $1,000. A partial distribution is permitted even when the TSP participant is at the moment receiving installment funds, both fastened greenback installment funds (which embrace an annual fastened greenback installment fee, quarterly fastened greenback installment funds, or month-to-month fastened greenback installment funds) or installment funds primarily based on life expectancy. Be aware that when a TSP participant requests a complete distribution of his or her complete TSP accounts, each forms of installment funds and partial distributions will stop.
A TSP participant who remains to be in federal service can request a partial distribution if the participant is no less than age 59.5. That is what referred to as an “in-service” TSP withdrawals.
Conventional TSP, Roth TSP or a Mixed Conventional and Roth TSP Partial Distribution
If a TSP participant has each a conventional TSP and a Roth TSP account, and the TSP participant requests a partial distribution, then the TSP participant can specify which TSP account the partial distribution needs to be taken from. The TSP participant can request that the partial distribution come solely from the standard TSP account, come solely from the Roth TSP account, or “pro-rata” from each TSP accounts. “Professional-rata” implies that the partial distribution will encompass the identical proportion of the standard TSP and the Roth TSP at the moment within the accounts on the time of the partial distribution request. The next instance illustrates:
Instance 1. Frank has each a conventional TSP account and a Roth TSP account. Frank’s mixed TSP account stability is $1 million wherein the standard TSP account stability is $750,000 (75 p.c of the whole) and the Roth TSP account stability is $250,000 (25 p.c of the whole). Frank requests a pro-rata partial distribution of $20,000. Frank’s partial distribution will encompass $15,000 (75% of $20,000) of conventional TSP cash and $5,000 (25% of $20,000) of Roth TSP cash.
Taxes on Partial TSP Distributions
Conventional TSP partial distributions are topic to full federal revenue tax and, if relevant, state revenue taxes. The TSP will robotically withdraw 20 p.c federal revenue tax on partial distributions from a conventional TSP account. A conventional TSP participant can request extra federal revenue tax (greater than 20 p.c) however not decrease than 20 p.c. For instance, a TSP participant who’s in a 12 p.c federal marginal tax bracket can not request 12 p.c federal revenue tax withheld on a partial conventional TSP distribution.
A TSP participant can request that a part of a conventional TSP partial distribution be instantly rolled over to a conventional IRA or to a conventional certified retirement plan (for instance, a conventional 401(ok) retirement plan). In that case, the one portion of a conventional TSP partial distribution that will not be topic to necessary federal revenue tax withholding is the portion of the distribution that’s instantly rolled over to both a conventional IRA or to a conventional certified retirement plan.
The TSP doesn’t withhold state revenue taxes. If a conventional TSP participant is a resident of a state with a state and native revenue tax, the TSP participant is liable for paying any state and native revenue taxes ensuing from a partial conventional TSP distribution.
A conventional TSP participant could make penalty-free (that’s, no IRS 10 p.c early withdrawal penalty) in the event that they retire or depart federal service someday throughout the 12 months or after the 12 months they turn out to be age 55. In the event that they retire from federal service earlier than age 55 (resembling by a Voluntary Early Retirement Authority, Voluntary Separation Incentive Cost, or a Discontinued Service Retirement) , then the worker must wait till they turn out to be age 59.5 so as to make penalty-free conventional TSP withdrawals. The next instance illustrates:
Instance 2. Janet, aged 45, retired from federal service underneath a VERA on June 30, 2025. Janet must wait till she is no less than age 59.5 so as to request a partial conventional TSP distribution and keep away from a ten p.c early withdrawal penalty.
To ensure that a Roth TSP participant to make a partial distribution and keep away from paying federal and state revenue tax on the accrued earnings of the partial Roth distribution, the Roth TSP participant should meet two necessities, particularly: (1) The Roth TSP participant have to be no less than age 59.5; and (2) It has been no less than 5 years since January 1st of the 12 months the Roth TSP participant made his or her first Roth TSP contribution.
Limitation on Variety of Partial TSP Distributions
A TSP participant is restricted annually as to what number of partial distributions the participant could request. A TSP participant who has retired from federal service or left federal service someday throughout or after the 12 months the participant has turn out to be age 55 is restricted to 12 partial distributions per calendar 12 months. No a couple of partial distribution could also be requested each 30 calendar days.
A TSP participant who remains to be in federal service and no less than age 59.5 can request not more than 4 partial distributions per calendar 12 months. No a couple of partial distribution could also be requested each 30 days.
Straight Rolling Over a Partial TSP Distribution
A TSP participant can instantly rollover a portion of their partial distribution to an IRA or to an eligible worker retirement plan. For instance, a portion of a partial conventional TSP distribution could also be instantly rolled over to a conventional IRA or to a conventional 401(ok) retirement plan. A portion of a partial Roth TSP distribution could also be rolled over to a Roth IRA or to a Roth 401(ok) retirement plan. Any tax-deferred quantities, from the standard TSP, that are rolled over will retain their tax-deferred standing till they’re distributed.
Conventional TSP Partial Distributions Rely In the direction of Annual TSP Required Minimal Distribution
For these TSP individuals who’re retired from federal service and who’ve reached their required starting date (at the moment age 73) and subsequently should take a required minimal distribution (RMD) from their conventional TSP, a partial distribution from the standard TSP will rely in the direction of the annual conventional TSP RMD. Be aware that efficient January 1, 2024, the Roth TSP just isn’t included within the calculation of the annual TSP RMD.
