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Federal Benefits Q&A

Question: “Do I have to pay state taxes on a TSP withdrawal? I retired and decided to withdraw $35,000 from my TSP account and put the rest into an annuity. So now that I have to file for taxes, I am confused over whether I have to report the $35,000. While contributing to the TSP, I lived in 3 different states.”

Question: “Do I have to pay state taxes on a TSP withdrawal? I retired and decided to withdraw $35,000 from my TSP account and put the rest into an annuity. So now that I have to file for taxes, I am confused over whether I have to report the $35,000. While contributing to the TSP, I lived in 3 different states.”

Answer: If at the time of withdrawing the $35,000 from your TSP account you are a legal resident of a state that has a state income tax—and which taxes TSP withdrawals—then you owe state income tax on the $35,000. Note that the TSP does not withhold state income taxes as it does federal income taxes. You are responsible for paying the state income taxes due. You are encouraged to find a tax accountant in your state who can advise you on how much of your TSP withdrawal is state income-taxable, and on the best way to pay any taxes due.

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