Post-Service Withdrawals from TSP Accounts

Chapter 6: Section 4

All TSP participants who separate from federal service (as well as beneficiary account holders; see Section 6 in this chapter) have the same TSP withdrawal options, regardless of eligibility for retirement benefits. You can choose to receive a life annuity, lump-sum payments, a series of installment 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, installment payments to an IRA or other eligible retirement plan, again within limits as described below.

There is no limit on the number of partial post-separation withdrawals although they must be at least 30 days apart. Account holders with both traditional and Roth balances may designate a withdrawal to come from one type of balance or may take it on a prorated basis. (Note: Proir to September 2019, only one partial post-separation withdrawal was allowed and those with both types of balance had to take withdrawals on a prorated basis.)

See Spousal Rights, below, for policies regarding spousal consent or notification in withdrawal decisions.

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. The publications Withdrawing Your TSP Account After Leaving Federal Service, Tax Information: Payments From Your TSP Account, and Tax Information: Monthly Payments are available at www.tsp.gov/forms/allPublications.html.

It is advisable to consult a financial professional about tax implications and other considerations of withdrawal decisions.

Withdrawal Options

There are three basic ways to take withdrawals from your TSP account, which can be used in any combination: (1) have the TSP purchase a life annuity for you, (2) receive your account in a single payment, and (3) a series of installment payments. 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. Note: The policies below regarding lump-sum payments and installment payments replaced more restrictive policies in September 2019 (policies regarding annuities were unchanged); those already taking periodic payments at the time are eligible for the current policies.

Lump-Sum Payments—You can withdraw up to the entirety of your account in one or more lump-sum payments (there is no limit on how many but they must be at least 30 days apart). Those with both traditional and Roth balances may choose to have withdrawals made from both on a prorated basis or may designate them to come from only one type of balance. Part or all the money transferred to an individual retirement account or other eligible plan subject to minimum withdrawal requirements, as described in Transferring Your TSP Account, below. If you take only a partial withdrawal, you can continue to transfer your remaining account balance among the TSP investment funds.

Installment Payments—You can withdraw your account in a series of monthly, quarterly or annual payments. You can choose:

• Payments of a specific dollar amount. You will receive payments in the amount that you request (subject to minimum withdrawal requirements) until your entire account balance has been paid out or you stop the payments.

• 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 payments every year based on your account balance at the end of the preceding year and your age. You have a one-time lifetime opportunity, at any time, to change to a payout based on a dollar amount.

Those with both traditional and Roth balances may choose to have withdrawals made from both on a prorated basis or may designate them to come from only one type of balance; if that balance is exhausted, the payments will automatically continue from the other balance unless stopped. Subject to minimum withdrawal requirements, at any time you can: change the amount of a designated dollar amount withdrawal or change the frequency of either type of payment; stop the payments; change the source (Roth vs. traditional balance, if drawing from only one) of the installment payments, change any portion transferred to an IRA or other eligible retirement plan or change the IRA or plan to which payments are sent (see Transferring Your TSP Account, below). To make changes, use Form TSP-95, Changes to Installment Payments, available only online at www.tsp.gov/forms/civilianForms.html. You also may take separate partial withdrawals while receiving those payments.

You can continue to transfer your remaining account balance among the TSP investment funds while you are receiving 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 payments if you chose the specific dollar amount option, or their size, if you chose the life expectancy option.

Annuity—If you purchase an annuity, the money used to buy it is taken out of the TSP and turned over to the annuity provider under a contract with the TSP, 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, you 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. The features of each annuity must be the same.

Payments of annuities purchased with traditional account balances are taxable as ordinary income in the years 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.

Note: You cannot change either the annuity option or a choice of joint annuitant after the TSP has purchased an annuity for you.

Several annuity features can be combined with the basic annuity types. These are:

• Increasing Payments—for newly purchased annuities, the amount of the monthly payment increases by 2 percent per year regardless of inflation; for annuities purchased before March 1, 2020, increases depend on the change in a Consumer Price Index measure, up to 3 percent each year.

• 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.

• 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 TSP has an annuity calculator at www.tsp.gov/PlanningTools/index.html that takes into account the different options. Also see the publication Withdrawing Your TSP Account After Leaving Federal Service at www.tsp.gov/forms/allPublications.html.

Spousal Rights

The spouses of TSP participants are granted certain rights under the Federal Employees’ Retirement System Act. The TSP determines participants’ marital status by how they list that status on their federal income tax return. (Note: The TSP recognizes common law marriages valid under the laws of the jurisdiction in which the marriage was established.)

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, your spouse is entitled by law to a joint life annuity with a 50 percent survivor benefit, level payments, and no cash refund feature based on the full amount of the account. For any other form of withdrawal you must submit a signed and notarized consent form from your spouse accompanying Form TSP-99, Withdrawal Request for Separated and Beneficiary Participants. This also applies changes to installment payments previously elected, using Form TSP-95, Changes to Installment Payments. These forms are available only online at www.tsp.gov/forms/civilianForms.html.

CSRS Participants—If you are a married CSRS participant with an account balance of more than $3,500, the TSP must notify your spouse of any withdrawal election or change in installment payments. You must provide the TSP with your spouse’s current address and the TSP will send the notice to that address by mail.

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 spousal 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 ThriftLine (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.


Withdrawal Requests

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 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-99, Withdrawal Request for Separated and Beneficiary Participants (available only online at www.tsp.gov/forms/civilianForms.html).

Note: If the TSP mistakenly makes a duplicate payment or other type of overpayment after you leave federal service, it uses the procedures for recouping debts owed to federal agencies under 5 CFR 1639. The rules provide for a notice, the rights to inspect pertinent records and a hearing, and limits on garnishment of salary from a subsequent employer.


Transferring Your TSP Account

When you leave federal service, you can transfer or roll over your account to an IRA or to another eligible retirement plan such as a 401(k) plan of a new employer, so long as it its plan can accept your transfer or rollover. In most cases a transfer is preferable to a rollover for reasons described below. Also see Tax Information: Payments from Your TSP Account at www.tsp.gov/forms/allPublications.html.

The plan you choose to transfer or roll your funds into may have rules such as spousal consent rules different from those that govern the TSP. Its rules further will determine your investment options, fees and rights to payment.

Note: Certain types distributions are not eligible to be rolled over or transferred, as described in the following two sections.

Traditional Balances—You will continue to defer taxes until you withdraw your money.

If you choose to have the TSP transfer all or a portion of a lump-sum full 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 installment payments to an IRA or an eligible employer plan, the TSP can transfer only payments that are not based on life expectancy and that are projected to last less than 10 years, based on the chosen 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 lump-sum payment and installment 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 will not accept them.

You may be eligible to have all or part of a traditional TSP account balance transferred or rolled over into a Roth IRA but you would have to pay taxes on the funds you transfer to the Roth IRA for the year of the transfer. Check with your tax adviser.

Any portion of a payment that is a required minimum distribution cannot be transferred but instead will be paid directly to you after 10 percent has been deducted for federal income tax withholding. This also applies if you are receiving installment 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 and an amount will be withheld for federal income tax as described in Taxation of Withdrawals from Traditional Balances, below. Taxable payments that would be 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. If you do not roll over the entire amount of your withdrawal within 60 days, the portion not rolled over will be taxed and will also be subject to the 10 percent early withdrawal penalty if you are under age 59 12. (For an exception for withdrawals related to the coronavirus pandemic, see In-Service Withdrawals in Section 3 of this chapter.)

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 12, 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 any taxable portion of your required minimum distribution. This rule also applies if you are receiving installment 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 12 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.html.

Eligible Rollover Distributions—The following types of payments are considered eligible rollover distributions:

• single payment of the entire account or part of the account;

• installment payments when the account is expected to be paid out in less than 10 years (except those made as required minimum distributions, which are non-periodic payments);

• automatic cashouts of accounts containing less than $200;

• age-based in-service withdrawals;

• amounts paid to a current or former spouse under a qualifying court order;

• IRS tax levies;

• loan taxable distributions due to separation; and

• death benefits to a non-spouse beneficiary.

The transfer of a traditional balance to a traditional IRA or eligible employer plan will not be taxed in the current year, and no income tax will be withheld. You won’t be taxed on this money until you withdraw it from the traditional IRA or the eligible employer plan. Any part of a traditional balance that you transfer to a Roth IRA will be taxed in the current year. No income tax will be withheld at the time of the transfer, so you may need to pay estimated taxes to ensure you pay enough income tax during the year.

Except for automatic cashouts, any amount paid directly to you is subject to 20 percent federal income tax withholding, which cannot be waived. You 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.

For information on transfers and rollovers, see Transferring Your TSP Account, above.

Periodic Payments—The following types of payments are considered periodic payments:

• installment payments when the account is expected to be paid out in 10 years or more; and

• installment payments computed according to the IRS life expectancy table.

A periodic payment may not be transferred or rolled over to an IRA or eligible employer planto continue tax deferral. Withholding for periodic payments is based on the assumption that you are married and claiming three withholding allowances. You 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.

Notes on Annuities: You will receive information about making a withholding election from your 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 you are under age 55 when payments begin.

 

Notes on Installment Payments: The first payment(s) 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. If you change the amount of dollar-amount payments or change to that type of payment from life expectancy-based payments (see Withdrawal Options, above in this section), 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: the payment is treated as a periodic payment if any part is expected to be paid over 10 or more years or is based on life expectancy).

A non-periodic payment may not be transferred or rolled over to an IRA or eligible employer planto continue tax deferral. The TSP will withhold 10 percent for federal income tax from these payments. In most cases, you 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.

Early Withdrawal Penalty—In addition to ordinary income tax, in certain situations an early withdrawal tax of 10 percent applies on amounts from traditional balances received directly from the TSP before you reach age 59 12, unless such payments are transferred or rolled over. The additional 10 percent tax generally does not apply to payments that are:

• paid after you separate from service during or after the year you reach age 55 (age 50 if you retired from certain occupations with special retirement eligibility rules; see note below);

• annuity payments;

• automatic enrollment refunds;

• made because you are totally and permanently disabled;

• made because of death;

• made from a beneficiary participant account;

• made in a year you have deductible medical expenses that exceed 10% of your adjusted gross income (7.5% if you or your spouse is 65 or over);

• ordered by a domestic relations court; or

• paid as installment payments over your life expectancy.

For an exception for withdrawals related to the coronavirus pandemic, see In-Service Withdrawals in Section 3 of this chapter.

The penalty never applies to contributions you made to your Roth balance or to qualified distributions of Roth earnings. It may apply to nonqualified distributions.

Note: Under P.L. 114-26 of 2015, firefighters, air traffic controllers and law enforcement officers under special retirement provisions (see Chapter 3, Section 8), may make withdrawals in any form without penalty if they retired in the year they turned age 50 or later.

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 12, 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 transfer or 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. Note: The early withdrawal penalty described above never applies to investments you made into a Roth balance or to qualified distributions of Roth earnings. It may apply to nonqualified distributions.

Notes on Transfers to Roth IRAs: If you transfer or roll over your TSP Roth balance into a Roth IRA, the starting date for satisfying the five-year rule for qualified distributions does not carry over. Instead, you count from Jan. 1 of the first year you contributed to any Roth IRA. You do not have to take a distribution from a Roth IRA during your lifetime; in contrast a Roth TSP balance, like a traditional TSP balance, is subject to required minimum distribution rules (see Leaving Your Money in the TSP, below). Distributions from a Roth IRA can only be rolled over or transferred to another Roth IRA. Distributions from Roth IRAs are paid first from contributions, then from earnings.

Also see Tax Information: Payments from Your TSP Account at www.tsp.gov/forms/allPublications.html.

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 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.