Post-Service Withdrawals from TSP Accounts
General Withdrawal Rights and Procedures
All TSP participants who separate from federal service have the same TSP withdrawal options, regardless of their eligibility for retirement benefits. You can choose to receive a life annuity, a single payment, a series of monthly payments, or any combination. You can ask to have your payments begin as soon as possible or you can leave the TSP account in place and wait until a future date to make a withdrawal, within limits described below. You can ask to have the TSP transfer all or part of a single payment or, in some cases, a series of monthly payments to an IRA or other eligible retirement plan. You also may take a one-time partial withdrawal (unless you took an age-based in-service withdrawal) and make a withdrawal decision on the remainder later, again within those limits.
For those with both traditional and Roth balances, withdrawals of less than the full account total are drawn from each type of balance on a prorated basis. See below for special rules applying to purchases of annuities.
Note: If your vested account balance is less than $200 after your agency reports to the TSP that you have left the government, you are subject to an automatic cashout. You will not be able to make any withdrawal election or remain in the TSP.
For special rules applying to those rehired after retirement, see Section 4 in Chapter 4. For special rules applying to those rehired after separation before eligibility for retirement, see Section 5 in Chapter 8. TSP publications Withdrawing Your TSP Account After Leaving Federal Service, Tax Information: Payments From Your TSP Account, and Tax Information: Monthly Payments are available in personnel offices, at www.tsp.gov/forms/allPublications.shtm or through the TSP Service Office; see Section 7 in this chapter for points of contact.
It is advisable to consult a financial professional about tax implications and other considerations of withdrawal decisions.
There are three basic ways to withdraw your TSP account: (1) have the TSP purchase a life annuity for you, (2) receive your account in a single payment, and (3) receive your account in a series of monthly payments. Participants can combine the options. In addition, participants generally can make a one-time partial withdrawal of at least $1,000 designated for one of these options while leaving the remainder in their accounts. The exception is those who made in-service age-based withdrawals; they cannot make a partial withdrawal after separation.
You cannot change your withdrawal choice after your account has been paid out. Also, you cannot change either the annuity option or your choice of joint annuitant after the TSP has purchased an annuity for you.
See below for tax considerations regarding withdrawals, in particular the differences between treatment of traditional balances and Roth balances. Also see Section 5 of this chapter for rules regarding mandatory distributions after certain ages.
Single Payment—You can withdraw your account balance in a single payment, with part or all of it transferred to an individual retirement account or other eligible plan as described in Transferring Your TSP Account, below.
Series of Monthly Payments—You can withdraw your account in a series of substantially equal monthly payments. You can choose:
- Monthly payments computed by the TSP based on an IRS life expectancy table. Your initial payment amount is based on your account balance at the time of the first payment and your age. The TSP will recalculate the amount of your monthly payments every year based on your account balance at the end of the preceding year and your age.
- A specific dollar amount per month. You will receive payments in the amount that you request until your entire account balance has been paid to you. The amount of the monthly payments that you request must be $25 or more. You can change the amount of a designated dollar amount withdrawal as often as annually, and you have a one-time lifetime opportunity to change a life expectancy-based withdrawal to a payout based on a dollar amount.
You can transfer your account balance among the TSP investment funds while you are receiving monthly payments. If you have investments outside the G Fund, investment losses could cause your account balance to decrease, which would reduce the number of your monthly payments if you chose the specific dollar amount option, or their size, if you chose the life expectancy option. You can change to a final single payment, change the proportion (if any) you choose to have transferred to an IRA or other eligible retirement plan as described in Transferring Your TSP Account, below, or change the IRA or plan to which payments are sent.
Annuity—When a TSP investor decides to purchase an annuity, the money used to buy it is taken out of the TSP and turned over to the annuity provider, currently the Metropolitan Life Insurance Company. The annuity provider, not the TSP, is responsible for paying the annuity and providing any needed services regarding the annuity. After an annuity is purchased, the recipient cannot change the election or terminate the annuity.
If you choose an annuity and you have only one type of balance (traditional or Roth) in your TSP account, you must have at least $3,500 in your account at the time your annuity is purchased. If you are using only a part of your account for an annuity, the portion you choose when requesting your withdrawal must equal $3,500 or more of your vested account balance.
If you choose an annuity and you have both a traditional balance and a Roth balance in your TSP account, you must have at least $3,500 in at least one of the types of balance. If one balance is below that threshold and one is above it, the TSP will purchase an annuity with the balance that is at least $3,500 and pay the other balance directly to you as a cash payment. If both balances are above the threshold, the TSP will purchase two of the same type of annuity, one with the traditional balance and one with the Roth balance. You cannot choose different annuities for each type of balance.
Payments of annuities purchased with traditional account balances are taxable as ordinary income in the years when you receive them. Payments comprised of Roth investments will not be taxed; whether the Roth earnings portion of an annuity payment is taxable depends on whether the IRS rules for qualifying earnings were met, as described in Roth Balances in Section 1 of this chapter. Taxable annuity payments are subject to tax withholding. The annuity provider will send information about withholding elections and reporting of payments to the IRS.
The TSP offers three basic types of annuities:
- Single Life—an annuity paid only during the recipient’s lifetime.
- Joint Life With Spouse—an annuity paid to the recipient while both the recipient and spouse are alive. When either dies, an annuity will be paid to the survivor for his or her life.
- Joint Life With Someone Other Than Spouse—an annuity paid to the recipient while the recipient and a person chosen by the recipient, other than the spouse, are alive. This person must have an “insurable interest” in the recipient. When either dies, an annuity will be paid to the survivor for his or her life.
Joint life annuities may provide either a 100 percent or 50 percent survivor benefit. This means that monthly payments will continue in the same amount (100 percent) or be reduced by half (50 percent) to you or to your joint annuitant when either one of you dies.
Several annuity features can be combined with the basic annuity types. These are:
- Increasing Payments—the amount of the monthly payment may increase up to 3 percent each year, depending on the change in the consumer price index.
- Cash Refund—if the recipient (and the joint annuitant, if applicable) dies before receiving payments equal to the amount of the account balance used to purchase the annuity, the designated beneficiary will receive a cash refund of the difference between the sum of the payments made and the amount used to purchase the annuity.
- 10-Year Certain—if the recipient dies within 10 years of the start of the annuity, the beneficiary receives the payments for the remaining portion of the 10-year period.
Monthly Annuity Amounts
The factors that affect the amount of the monthly payments are:
- the annuity options chosen;
- the age of the participant when the annuity is purchased;
- the age of the spouse or other joint annuitant, if an annuity with survivorship rights is elected;
- the balance of the TSP account used to purchase the annuity; and
- market interest rate levels when the annuity is purchased.
In general, the single life-only annuity option will pay the largest monthly benefit; a joint and 100 percent survivor annuity with annual increases and a cash refund will pay the smallest monthly benefit.
The table titled “Approximate Monthly Annuity Payments Per $1,000 of Plan Balance” uses an interest rate of 6 percent. The TSP also has an annuity calculator on its Web site, www.tsp.gov, that takes into account differing interest rates and other factors.
The spouses of TSP participants are granted certain rights under the Federal Employees’ Retirement System Act of 1986. The TSP determines participants’ marital status by how they list that status on their federal income tax return.
The TSP recognizes same-sex spouses who were married in a jurisdiction that recognizes such marriages, regardless of current place of residence, in light of the U.S. Supreme Court decision in United States v. Windsor, 133 S. Ct. 2675 (June 26, 2013) that overturned a law that had defined marriage for federal benefits purposes as only between a man and a woman. It further recognizes common law marriages valid under the laws of the jurisdiction in which the marriage was established. Some states and the District of Columbia recognize common law marriage in some form.
Generally, for TSP purposes the term “spouse” includes a separated spouse.
FERS Participants—If you are a married FERS participant with an account balance of more than $3,500 and you are making a full withdrawal, your spouse is entitled by law to a joint life annuity with a 50 percent survivor benefit, level payments, and no cash refund feature. For any other form of full withdrawal, your spouse must sign a statement on Form TSP-70 waiving his or her right to the required annuity. Your spouse’s signature must be notarized.
If you are a married FERS participant and you are making a partial withdrawal, your spouse must give written consent on Form TSP-77, regardless of your account balance or the amount of your withdrawal. Your spouse’s signature must be notarized.
CSRS Participants—If you are a married CSRS participant with an account balance of more than $3,500 and you are making a full withdrawal, the TSP must notify your spouse of your withdrawal election. If you are a married CSRS participant and you are making a partial withdrawal, the TSP must notify your spouse of your withdrawal election, regardless of your account balance or the amount of your withdrawal.
Exceptions—Under certain circumstances, exceptions may be made for the spouse’s waiver of a survivor annuity (FERS) or notice (CSRS), or the spouse’s consent to a partial withdrawal (FERS). If the whereabouts of your spouse are unknown, or if there are exceptional circumstances (applicable to FERS and uniformed services participants only) that make it inappropriate for you to obtain your spouse’s signature, you may apply for an exception to the spouse waiver and notice requirements by submitting Form TSP-16, Exception to Spousal Requirements, with the required documentation. The criteria for supporting a claim on the basis of exceptional circumstances are strict. The fact that there is a separation agreement, a prenuptial agreement, a protective order, or a divorce petition does not in itself support a claim of exceptional circumstances.
For more information on establishing an exception to the spouses’ rights requirements, see Form TSP-16, Exception to Spousal Requirements, available from personnel offices, the TSP Web site or the TSP Service Office (see Section 7 of this chapter for points of contact).
Court Orders—The TSP must honor a valid court order that awards all or part of your TSP account to a former or separated spouse. The TSP must also honor a valid order that enforces obligations to pay child support or alimony or to satisfy judgments of child abuse. With the exception of a required minimum distribution, your withdrawal request will not be accepted until the court order is settled. If the TSP determines that an order is valid and applies to your TSP account, it will comply with the order before your withdrawal is processed. See Chapter 7, Section 5.
What Your Agency Must Do—When you leave the government, your agency is required to give you a TSP Withdrawal Package that contains a tax notice and the forms you will need.
Your agency must also notify the TSP that you have left the government by submitting to the TSP a separation code and the date of your separation. This typically occurs two to four weeks after separation. The TSP cannot start your withdrawal process until your agency reports this information.
What the TSP Will Do—When information about your separation is received, the TSP will send you current account and withdrawal information and the tax notice (unless the TSP has already received a withdrawal election from you). If you do not receive this information within 60 days after leaving the government, contact your former agency to make sure it has submitted a separation code and the date of your separation to the TSP.
If you have an outstanding TSP loan at the time your agency reports your separation, the TSP Service Office will notify you. An outstanding loan will delay your withdrawal, because you cannot withdraw your account until you have repaid your loan in full or a taxable distribution to you has been declared.
What You Should Do—Read the TSP’s booklet Withdrawing Your TSP Account after Leaving Federal Service and the tax notice provided by your agency. When you are ready to make an election—but not before you separate from service—complete Form TSP-70, Request for Full Withdrawal, or Form TSP-77, Request for Partial Withdrawal When Separated, depending on your preference.
Send the appropriate form to the TSP Service Office. Make sure your forms are complete and correct before you mail them. The TSP Service Office won’t accept changes over the telephone.
Transferring Your TSP Account
Your TSP account is a portable retirement benefit. This means that, when you leave federal service, you can have the TSP transfer your account to an IRA or other eligible retirement plan such as a 401(k) plan of a new employer. If you are employed after leaving government, check with your new employer to see if its plan can accept your transfer.
Traditional Balances—You will continue to defer taxes on the amounts transferred. In this way, your savings will continue to accrue tax-deferred earnings until you withdraw your money.
If you choose to have the TSP transfer all or a portion of your single payment or partial withdrawal, you can direct the transfer to only one IRA account or eligible employer plan. The amount not transferred will be paid directly to you, typically by direct deposit.
If you choose to have the TSP transfer your monthly payments to an IRA or an eligible employer plan, the TSP can transfer only monthly payments that are not based on life expectancy and that are projected to last less than 10 years, based on the chosen montly dollar amount. If you later change the amount, the TSP will again determine whether your remaining payments are expected to last less than 10 years and thus whether they are eligible to be transferred.
If you transfer both a single payment and monthly payments, both types of payments must be sent to the same account at the same financial institution.
To request a transfer, you must indicate on your withdrawal form the percentage of your payment(s) that you want transferred to your IRA or eligible employer plan. In addition, you and your IRA or plan must provide the information requested on your TSP withdrawal form. Do not use forms of the plan or financial institution; the TSP cannot accept them.
You may be eligible to have all or part of your TSP account transferred or rolled over into a Roth IRA, which accepts only after-tax dollars. You must pay taxes on the funds you transfer to the Roth IRA. The tax liability is incurred in the year of the transfer. Check with your tax adviser about this benefit.
If a portion of your payment is a required minimum distribution, that portion cannot be transferred. Instead, it will be paid directly to you after 10 percent has been deducted for federal income tax withholding. This rule also applies if you are receiving monthly payments and elect to receive a final single payment that includes a required minimum distribution.
Amounts that are not transferred to an IRA or other eligible plan will be paid directly to you (or to your checking or savings account, if you so elect), and an amount will be withheld for federal income tax as described below. Taxable payments that are eligible to be transferred, but are sent directly to you, can be rolled over to an IRA or an eligible employer plan within 60 days of the date you receive the funds from the TSP.
Roth Balances—You may transfer or roll over your Roth balance to a Roth IRA or a Roth account maintained by an eligible employer plan that will accept it. If you make a transfer or rollover to a Roth IRA, the administrator of a receiving Roth IRA will determine whether you have satisfied the five-year rule for determining whether earnings are “qualified” as described in Roth Balances in Section 1 of this chapter. You will not be required to take a distribution from the Roth IRA during your lifetime, and you must keep track of the total amount of the after-tax investments in all of your Roth IRAs in order to determine your taxable income for later Roth IRA payments that are not qualified distributions.
If you choose a transfer:
- The TSP will make the payment directly to your Roth IRA or Roth account maintained by an eligible employer plan. The transfer will not be taxed in the current year and no income tax will be withheld. However, if, at that time, your payment does not meet the IRS rules for qualified earnings, the taxable portion will be subject to federal tax withholding. (Note: If your Roth earnings are not qualified and you are under age 59 1⁄2, an early withdrawal penalty may also apply.)
- If a portion of your payment is a required minimum distribution, that portion cannot be transferred. Instead, it will be paid directly to you after 10 percent federal tax withholding has been deducted from the taxable portion of your required minimum distribution. This rule also applies if you are receiving monthly payments and elect to receive a final single payment that includes a required minimum distribution.
- If you choose to have the TSP transfer only a portion of your payment and a portion is paid to you, each payment will be paid proportionally from your Roth investments and earnings. Any nonqualified Roth earnings that are paid to you will be subject to tax.
If you choose to do a rollover:
- You will have up to 60 days after you receive the payment to make the deposit into your Roth IRA or Roth account maintained by an eligible employer plan.
- If your payment is not a qualified Roth distribution, the TSP is required to withhold 20 percent of the earnings for federal income taxes. This means that in order to roll over your entire payment to a Roth IRA, you must use other funds to make up for the amount withheld.
- You can only roll over your distribution into a Roth account maintained by an eligible employer plan if the payment is nonqualified (taxable) and the rollover amount does not exceed the amount of the earnings in the payment.
- If you receive a nonqualified distribution and you do not roll over an amount at least equal to the amount of the earnings, you will be taxed on the amount of the earnings not rolled over. You also will be subject to the 10 percent early withdrawal penalty tax on the amount of nonqualified earnings not rolled over if you are under age 59 1⁄2 unless an exception applies.
Taxation of Withdrawals from Traditional Balances
Amounts paid from a traditional TSP balance are taxable income for federal and other tax purposes in the year or years in which payment is made. Depending on the withdrawal method chosen, different withholding rules apply. For example, there is a mandatory 20 percent federal income tax withholding on certain payments unless the account holder asks the TSP to transfer the payments to an individual retirement account or other eligible retirement plan as described above. For withholding purposes, payments are classified as three types:
• eligible rollover distributions;
• periodic payments; and
• non-periodic payments.
Federal income tax withholding rules are different for each (the TSP does not withhold amounts for state or local income taxes). Also see Tax Information: Payments from Your TSP Account at www.tsp.gov/forms/allPublications.shtml.
Eligible Rollover Distributions—The following types of payments are considered eligible rollover distributions:
• single payment of the entire account or part of the account;
• monthly payments when the account is expected to be paid out in less than 10 years (except those computed by the TSP according to the IRS life expectancy table);
• automatic cashouts of accounts containing less than $200;
• age-based in-service withdrawals;
• death benefits paid to a spouse;
• amounts paid to a current or former spouse under a qualifying court order;
• a final single payment made after a series of monthly payments;
• partial withdrawals after separation or from a beneficiary account;
• loan taxable distributions due to separation; and
• death benefits to a non-spouse beneficiary.
Any amount paid directly to the recipient is subject to 20 percent federal income tax withholding, which cannot be waived. The recipient may elect to have an amount in addition to the 20 percent withheld on the withdrawal form or through IRS Form W-4P, Withholding Certificate for Pension or Annuity Payments, and submitting it to the TSP Service Office.
The recipient can avoid withholding on all or any portion by having the TSP transfer that amount to an IRA or other eligible retirement plan. However, the recipient cannot avoid withholding on any amount that was received directly, even if it is then rolled over to an IRA or other eligible plan.
For information on transfers and rollovers, see Transferring Your TSP Account, above.
Periodic Payments—The following types of payments are considered periodic payments:
• monthly payments when the account is expected to be paid out in 10 years or more; and
• monthly payments computed according to the IRS life expectancy table.
Withholding for periodic payments is based on the assumption that the recipient is married and claiming three withholding allowances. The recipient may elect to have a different amount, or none, withheld through the withdrawal form or IRS form W-4P, Withholding Certificate for Pension or Annuity Payments, and submitting it to the TSP Service Office.
Notes on Annuities: The recipient will receive information about making a withholding election from the annuity provider at the time the annuity is purchased. Annuity payments are reported for tax purposes by the annuity provider. Annuity payments are not subject to the IRS early withdrawal penalty, even if the recipient is under age 55 when payments begin.
Notes on Monthly Payments: The first monthly payments made during a year will be considered minimum distribution payments if such payments are required—see Section 5 of this chapter—and will generally be treated as non-periodic payments. However, when the required minimum distribution amount for that year is satisfied, subsequent payments will be treated as either eligible rollover distributions or periodic payments for tax withholding purposes, according to their character.
Once a year, you will be permitted to make a change in the amount of your monthly payments. If you are receiving monthly payments based on life expectancy, you will also be able to change (irrevocably) to monthly payments based on a dollar amount. If you make either change, the tax withholding on your new payments will be determined according to whether the new payments are eligible rollover distributions or periodic payments. You will need to submit a new IRS Form W-4P for your new payment amount.
Non-Periodic Payments—The following types of payments are considered non-periodic payments:
• financial hardship in-service withdrawals;
• a refund of automatic enrollment investments;
• a death benefit from a beneficiary account;
• taxable loan distributions while still employed;
• court-ordered payments not to a current or former spouse; and
• required minimum distributions (exception: if a portion of a monthly payment is used to satisfy a required minimum distribution and that monthly payment is considered a periodic payment, the entire payment is a periodic payment).
The TSP will withhold 10 percent for federal income tax from these payments. The recipient may elect to have an additional amount, or none, withheld through IRS Form W-4P, Withholding Certificate for Pension or Annuity Payments, and submitting it to the TSP Service Office.
Early Withdrawal Penalty—In addition to ordinary income tax, in certain situations an early withdrawal tax of 10 percent applies on amounts received directly from the TSP before you reach age 59 1⁄2, unless such payments are transferred or rolled over.
The additional 10 percent tax generally does not apply to payments that are:
• automatic enrollment refunds;
• paid after you separate from service during or after the year you reach age 55;
• made because you are totally and permanently disabled;
• paid as substantially equal payments over your life expectancy;
• annuity payments;
• ordered by a domestic relations court;
• made from a beneficiary participant account;
• made because of death; or
• made in a year you have deductible medical expenses that exceed 7.5 percent of your adjusted gross income.
The disability and medical expenses exceptions must be justified to the IRS when you file your taxes.
Taxation of Withdrawals from Roth Balances
Investments you made into a Roth balance already have been taxed and you will not owe taxes on them when you receive a distribution from your account. The tax treatment of earnings depends on whether the payment is a “qualified” distribution as described in Roth Balances in Section 1 of this chapter. (Note: For a beneficiary account holder, the five-year requirement runs from Jan. 1 of the calendar year in which the deceased TSP participant first made a Roth investment in the account.)
If the earnings portion of your Roth balance is not a qualified distribution and you do not transfer or roll over the payment to a Roth IRA or Roth account maintained by an eligible employer plan (see Transferring Your TSP Account, above), you will be taxed on that portion. If you are under age 59 1⁄2, a 10 percent early withdrawal penalty tax on early distributions may also apply to the earnings.
However, if you transfer or roll over the payment, you will not have to pay taxes currently on the earnings and you will not have to pay taxes on payments that later become qualified distributions, for example by satisfying the five-year investment requirement.
In summary, if the payment from your TSP Roth balance is a qualified distribution, you will not be taxed on any part of the payment even if you do not transfer or roll over the payment. If the payment from your TSP account is a nonqualified distribution and you transferor roll over the payment, you will not be taxed on the amount you transfer or roll over. Any earnings on the amount you transfer or roll over will not be taxed if paid later in a qualified distribution.
Also see Tax Information: Payments from Your TSP Account at www.tsp.gov/forms/allPublications.shtml.
Reporting Changes in Personal Information
Until your TSP account is completely withdrawn, you must keep the TSP informed of any changes in your mailing address and other personal information maintained by the TSP. Otherwise, you may not receive your participant statements and other important information. You should also inform the TSP of any address change through January following the year an account is closed so that you will receive tax reporting information.
Before you separate from service, your agency personnel office is responsible for updating your TSP account records. After separation, you must report changes to the TSP Service Office as follows:
• To change your address, submit Form TSP-9, Change in Address for Separated Participant. You can also change your address for your TSP account on the TSP Web site; you will need your Social Security number and Web password.
• To change your name, submit Form TSP-15, Change in Name for Separated Participants.