TSP Withdrawal Options in Retirement

Your four main withdrawal options

The TSP offers four primary ways to use your balance. Most retirees use a combination over time as their income needs and tax situation evolve. The choice is not permanent for every method, so understand what each one gives you and what it takes away.

Can you choose which money a withdrawal comes from?

Partly — and the answer has three levels. Most guides get at least one of them wrong.

Traditional vs. Roth: yes, you choose

Since 15 September 2019, you can specify that a distribution comes only from your traditional balance, only from your Roth balance, or pro rata from both. This applies to post-separation distributions, installments, age-59½ withdrawals, and financial hardship withdrawals alike.

A large amount of currently published advice still says TSP forces every withdrawal to be split proportionally between traditional and Roth. That was true before September 2019 and has been false for six years. You will find it on pages published in 2026. It is wrong, and it matters — the ability to draw traditional money in low-income years and Roth money in high-income years is one of the few real levers you have.

Inside your Roth balance: no, you can’t choose

This is where pro rata still binds, and where guides that corrected the first error often overcorrect into a second one. Every Roth payment includes your contributions and your earnings in the same proportion as they exist in your Roth balance. You cannot take a withdrawal from your Roth contributions only in order to avoid touching earnings.

This is a real difference from a Roth IRA, which has ordering rules that return your contributions first. In a Roth IRA you can pull your basis out tax-free at any age. In Roth TSP you cannot.

Across funds: always pro rata

Every withdrawal comes out of your funds in proportion to your balances. If you are 60% C Fund and 40% G Fund, a $10,000 withdrawal is $6,000 from C and $4,000 from G.

This defeats the “withdraw from the G Fund in a down market” strategy you’ll see recommended. You cannot select a fund to sell. The workaround is to complete an interfund transfer to reset your allocation before requesting the withdrawal — the withdrawal then draws pro rata against the new allocation.

The new lever: in-plan Roth conversions

TSP began allowing Roth in-plan conversions in January 2026. You can now convert traditional TSP money to Roth TSP inside the plan, without rolling out to an IRA first. This is the most significant change to federal retirement drawdown planning in years, and almost nothing written about TSP withdrawals mentions it.

Why it matters for withdrawal strategy

Between the day you separate and the year RMDs begin, you often have a window of unusually low taxable income — no salary, and not yet forced to draw. Converting traditional money to Roth during that window means paying tax at today’s rate instead of at whatever rate applies when RMDs force the money out.

It also shrinks the balance your future RMDs are calculated on. RMDs are computed from your traditional balance only. Money converted to Roth is permanently removed from that calculation.

The mechanics

• Minimum conversion: $500.
• The converted amount is taxable in the year you convert.
• Pay the tax from outside money if you can. Using TSP funds to cover the tax bill defeats much of the point and, under 59½, may trigger the 10% penalty on the amount used.
• If you are subject to an RMD this year, you must take it before converting. RMD amounts cannot be converted.

The recapture clock most people miss

Each conversion starts its own separate five-year clock, running from 1 January of the conversion year. Withdraw converted money within that window and you may owe the 10% early withdrawal penalty on the converted amount — even though you already paid income tax on it — unless you are 59½ or older or another exception applies.

Withdrawals draw from converted money oldest conversion first. This is separate from the five-year clock that governs whether your Roth earnings come out tax-free. You can have several clocks running at once.

Who this suits, and who it doesn’t

Conversion tends to make sense if you expect higher tax rates later, have a long gap between separation and RMDs, can pay the tax from non-TSP money, and want to reduce the RMD base. It tends not to if you’re already in a high bracket, need the money within five years, would push yourself into an IRMAA tier, or can’t cover the tax bill from outside funds. Model it against the IRMAA thresholds below before converting a large amount in a single year.

What you’re actually allowed to do

Several of these were different before 2019, and one changed in 2024. If a guide tells you that you get one lifetime partial withdrawal, that you must wait 30 days between withdrawals, or that installment changes are limited to an annual window, it’s describing rules that no longer exist.

One mechanical detail: to change the amount, type, frequency, or source of your installments, you stop the existing ones and request new ones. It isn’t an in-place edit.

Traditional vs. Roth TSP: tax comparison

How you’re taxed on TSP withdrawals depends on whether the money came from traditional, pre-tax contributions or Roth, after-tax contributions. Having both gives you flexibility to manage taxable income across retirement.

Traditional TSP withdrawals generally increase adjusted gross income, which can affect the taxation of Social Security and Medicare premiums. Qualified Roth TSP withdrawals do not. The best mix depends on your working-year tax rate, expected retirement income, conversion window, and need for tax-free flexibility.

RMDs: what changed, and what most guides still say

Your RMD age depends on your birth year

If you were born in 1959, read this. The statute describes your cohort under two conflicting provisions — one setting age 73, one setting 75. Treasury’s final regulations left the paragraph reserved; the companion proposed regulations resolve it at 73, applicable to distribution years beginning on or after 1 January 2025. That is the working answer, but it rests on a proposed regulation rather than settled statute. If you were born in 1959, confirm with your tax advisor before planning around it.

RMDs don’t start while you’re still working

TSP is an employer plan, so the required beginning date is 1 April of the year after you reach your applicable age and have separated from federal service. Stay in federal service past your applicable age and no RMD is required from TSP. An IRA has no such deferral — a meaningful difference if you’re weighing a rollover.

Roth TSP is no longer subject to RMDs

As of tax year 2024, Roth balances are not subject to required minimum distributions during your lifetime. Before 2024 they were, which was a standard reason to roll Roth TSP out to a Roth IRA. That reason no longer exists, and guides still citing it are two years stale.

Your RMD is calculated on your traditional balance only, and Roth distributions do not count toward satisfying it. If you take Roth-only distributions all year, you have satisfied nothing, and TSP will issue a forced payment from your traditional balance before the deadline.

The missed-RMD penalty is 25%, not 50%

SECURE 2.0 cut the excise tax on a missed RMD from 50% to 25%, and to 10% if you correct it within a two-year window. The 50% figure is one of the most persistent stale numbers on the web.

TSP will do it for you

If your withdrawals don’t satisfy your RMD, TSP issues a supplemental payment from your traditional balance before the annual deadline. You won’t accidentally incur the penalty through inaction — but you also won’t control the timing.

RMD amounts are not eligible for rollover. If you plan to move your whole TSP to an IRA in a year you owe an RMD, the RMD has to come out first and cannot go into the IRA.

What gets withheld, and when

TSP withholds nothing for state or local income tax — but it does report every payment to your state of residence at the time of the payment, if that state has an income tax. If you’re relocating in retirement, note that it’s your residence when the payment is made that gets reported. Plan for estimated payments.

The 20% trap on indirect rollovers

If you have TSP send you the money intending to deposit it into an IRA yourself, TSP withholds 20% first. On a $100,000 distribution you receive $80,000 — but to complete a full rollover within the 60-day window you must deposit $100,000, making up the withheld $20,000 from other funds. Anything you don’t replace is treated as a taxable distribution, plus a 10% penalty if you’re under 59½ without an exception.

A direct transfer avoids this entirely. Ask for a direct trustee-to-trustee transfer, not a check.

One quirk if your installments started before 2023

Installments set up before 2023 continue to have withholding calculated under the older default. Anything initiated since then uses single-with-zero, which withholds noticeably more. If your installment payments began years ago and the net amount looks different from a friend’s, this is usually why.

The IRMAA trap: when TSP withdrawals raise Medicare costs

One of the most surprising costs for federal retirees is the Income-Related Monthly Adjustment Amount (IRMAA) — a Medicare Part B surcharge triggered by higher income two years prior. Traditional TSP withdrawals count toward your adjusted gross income and can push you over the IRMAA threshold. That two-year delay makes a conversion or large withdrawal today a future Medicare decision as well as a tax decision.

2026 thresholds confirmed by CMS (based on 2024 MAGI). Married filing jointly: standard below $218,000; top bracket above $750,000. Surcharge amounts approximate — verify at medicare.gov.

Roth TSP withdrawals do not count toward MAGI. This is one of the strongest arguments for building a Roth TSP balance — it gives you “invisible income” in retirement that doesn’t trigger IRMAA, doesn’t increase Social Security taxation, and doesn’t bump your tax bracket.

Because Medicare looks back two years, the effect is easy to miss. A large conversion at 62 shows up in your premium at 64. Include the future premium cost when you compare the tax paid today with the tax and Medicare cost avoided later.

Sequencing: which account to draw from first

There is no universal answer, but there is a framework. Work through it in order and rerun it annually.

1. Establish your tax floor and ceiling for the year. Your FERS annuity is largely taxable and arrives whether you want it or not. Add the FERS supplement if you’re getting it, plus any Social Security. That’s your floor. Your ceiling is the top of the bracket you’re willing to fill, and — if you’re 63 or older — the IRMAA tier you’re willing to land in.
2. Fill the gap between floor and ceiling with traditional TSP or conversions. In the years between separation and RMDs, traditional money withdrawn or converted at a low rate is money that never gets forced out at a high one.
3. Use Roth TSP for anything that would breach the ceiling. Qualified Roth distributions don’t count as taxable income, don’t raise your IRMAA determination, and don’t affect the taxation of your Social Security.
4. Watch the two-year IRMAA lookback. A large conversion at 62 shows up in your premium at 64. See the IRMAA section above.
5. Re-run it annually. Brackets, IRMAA thresholds, and your own income all move.

The mistake this framework is designed to prevent is leaving a large traditional balance untouched through your sixties because you don’t need the money, then being forced to take large RMDs on top of a full income picture in your seventies — often at a higher rate than you would have paid earlier, and often pushing you into an IRMAA tier at the same time.

Should you roll your TSP to an IRA?

This is a genuine trade-off, not a one-sided answer.

Reasons to keep money in TSP

• Cost. TSP’s net administrative expense ratio was 0.034% for 2025 — about 34 cents per $1,000.
• The G Fund has no equivalent anywhere. You cannot replicate it in an IRA.
• The separation-from-service penalty exception. If you separated in or after the year you turned 55 — or at 50, or with 25 years of service, if you’re a qualified public safety employee — you can withdraw from TSP without the 10% penalty before 59½. That exception does not follow the money into an IRA. Roll over at 56 and you lose penalty-free access until 59½.
• RMDs don’t start while you’re still federally employed. An IRA has no such deferral.
• Roth TSP no longer has lifetime RMDs. The historic reason to move Roth money out is gone.

Reasons to roll out

• Investment choice. TSP offers five core funds plus the L Funds and no individual securities. The mutual fund window exists but costs $37 plus $95 annually plus $28.75 per trade, requires a $40,000 balance and a $10,000 minimum initial transfer, and is capped at 25% of your account.
• Roth ordering rules. A Roth IRA returns your contributions first; Roth TSP forces every distribution pro rata between basis and earnings.
• Fund-level control. An IRA lets you sell specific positions. Every TSP withdrawal is pro rata across your funds.

One door that only opens outward: you can roll a traditional IRA into TSP, but TSP will not accept any rollover from a Roth IRA, by any method. Roth money that leaves TSP can never come back.

If you have a Roth TSP, do this years before you retire

The five-year clock that makes your Roth earnings tax-free does not carry over to a Roth IRA. If you roll a twelve-year-old Roth TSP into a Roth IRA you opened last week, you count from the Roth IRA’s start date, not the TSP’s.

The fix costs almost nothing: open a Roth IRA now and put a small amount in it. That starts the clock. Years later, when you roll over, you inherit the older clock rather than restarting at zero.

Common mistakes to avoid

Frequently asked questions

Primary sources

• TSP, Withdrawals in retirement
• TSP, Taking money from your account
• TSPBK25, Distributions
• TSPBK26, Tax Rules about TSP Payments
• TSPBK12, In-Service Withdrawals
• TSPBK35, Roth In-Plan Conversion
• TSP Bulletin 19-6
• TSP Bulletin 25-4 (Roth in-plan conversion launch)
• TSP, SECURE 2.0 and the TSP
• IRS, Topic No. 558
• IRS, Exceptions to tax on early distributions
• IRS, RMD FAQs
• Federal Register, Required Minimum Distributions (19 July 2024)