TSP withdrawal rules for federal employees

It depends on whether you are still employed. The comparison below separates the two situations. Details appear in the sections on in-service withdrawal rules, TSP loans, and withdrawal options after retirement. This is educational information, not personalized withdrawal or tax advice.

After you separate from federal service, TSP rules allow a single partial distribution, a total distribution, installments, an annuity purchase, or a combination. You can generally choose traditional money, Roth money, or a proportional mix for a payment. The mechanics are described in TSP's withdrawal guidance.

The option that fits a household depends on its income needs, taxes, other accounts, and timing. This is educational information, not a universal withdrawal recommendation. For the broader keep-versus-rollover decision, see TSP in retirement.

A TSP distribution before age 59½ may be subject to a 10% additional federal tax on the taxable amount unless an exception applies. One commonly discussed exception applies when you separate from service during or after the calendar year you turn 55. This is often called the rule of 55, though it is a tax exception rather than a separate TSP withdrawal type. IRS Publication 575 and the TSP payments booklet describe the rule and its limits.

If you are still employed, an age-based in-service withdrawal may be available once you are 59½ or older. The in-service withdrawal rules below list its terms.

Traditional TSP contributions and their earnings are generally taxable when withdrawn. A Roth TSP distribution is generally tax-free only if it is qualified: the five-taxable-year requirement must be satisfied and the distribution must be made after age 59½, death, or disability. If it is not qualified, part of the distribution may be taxable. TSP's traditional and Roth guidance and the IRS designated Roth account FAQs provide the current rules.

TSP can generally source a withdrawal from traditional money, Roth money, or both. The choice can affect current taxable income and future account balances, so it is worth evaluating with the rest of your retirement-income plan rather than assuming Roth-first or traditional-first is universally preferable. Our tax-efficient withdrawal order guide explains the planning questions that often accompany that decision.

Required minimum distributions, or RMDs, generally apply to traditional retirement-plan money. The starting age depends on year of birth: it is generally 73 for people born from 1951 through 1959 and 75 for people born in 1960 or later, subject to rules about separation and first-distribution timing. The first RMD is generally due by April 1 of the year following the first year you are required to take one, with another distribution potentially due by December 31 that same year. IRS RMD FAQs explain the current deadlines and exceptions.

For 2024 and later, an original owner's Roth TSP balance is not subject to lifetime RMDs. Traditional and Roth money follow different rules, and beneficiary accounts can have separate deadlines. Confirm the current TSP and IRS guidance for your account before making a distribution decision.

TSP participants who are still working have narrower withdrawal choices than separated participants. TSP identifies two primary in-service categories: age-based withdrawals for participants age 59½ or older and financial-hardship withdrawals for an immediate and heavy financial need. The TSP hardship withdrawal rules explain the eligibility requirements and available online tools.

A hardship withdrawal has consequences that may include taxable income and a possible additional tax if an exception does not apply. TSP's financial hardship booklet lists the current conditions, documentation standards, and restrictions. It is important to review those materials before assuming a hardship request is the right option.

An age-59½ withdrawal is limited to vested funds, must be at least $1,000 (or the entire vested balance if smaller), and may be taken up to four times per calendar year for each account tied to active employment. A hardship withdrawal must be at least $1,000, is limited to your own contributions and their earnings, and requires you to certify a genuine financial hardship. Married FERS participants generally need spousal consent for either type. See TSP's in-service withdrawal types and terms before acting.

TSP limits how many in-service withdrawals you can take, but it no longer requires a 30-day wait between withdrawal requests. TSP states that, as of May 15, 2024, participants no longer need to wait 30 calendar days before requesting another withdrawal, for in-service and separated participants alike (TSP Bulletin 19-8 and Bulletin 19-6). Older articles and forms may still describe a one-withdrawal-per-30-days rule.

TSP processes one request at a time for each account, so a new withdrawal or loan request cannot be submitted while another is pending. Requests entered before noon Eastern time are generally processed that night and can be changed or canceled only until noon on the processing day.

A TSP loan is not a withdrawal. Participants who are still employed and in pay status may borrow from their own contributions and earnings and repay the account with interest, usually through payroll deduction. TSP states that a loan is not taxable income unless it goes unpaid. Separated and retired participants cannot take a new loan. TSP's loan page and the TSP loans booklet describe the current rules.

To qualify, you need at least $1,000 of your own contributions and earnings and must not have fully repaid a TSP loan within the past 30 business days. The minimum loan is $1,000. The maximum is the smallest of three TSP tests, including a $50,000 ceiling reduced by your highest loan balance in the last 12 months. You may have up to two loans outstanding, only one of which may be a primary residence loan. Married FERS participants need spousal consent.

The loan interest rate equals the G Fund rate for the month before the request and stays fixed for the life of the loan. The interest is not tax deductible. Borrowed money does not earn TSP investment returns while it is out of the account, and lower contributions during repayment could reduce agency matching if your contribution rate falls below 5%.

If payments are missed or the loan is not repaid by the end of its term, the balance may become a taxed loan. The IRS generally treats it as taxable income, and a 10% additional tax may apply if you are under age 59½. If you separate from service with a balance, you generally must keep making payments, pay it off, or accept taxable treatment of the remaining balance.

Whether a loan, a withdrawal, or neither fits depends on your circumstances, and this guide does not recommend one over another. If you are considering a TSP loan and would like to talk with an advisor first, contact us for a complimentary consultation.

The TSP Modernization Act of 2017 led to withdrawal-rule changes that took effect September 15, 2019. The changes expanded flexibility for separated participants, including partial withdrawals, installment payments, annuity purchases, and combinations. They also allowed participants to choose traditional, Roth, or proportional sources for many payments. TSP Bulletin 19-6 describes the separated-participant changes.

The 2019 update also changed certain hardship and age-based in-service withdrawal processes. For example, TSP states that the former six-month suspension of employee contributions following a hardship withdrawal was eliminated. TSP procedures can change, so use the current TSP withdrawal pages rather than relying only on an older form or handbook. This change is separate from the six-month wait between hardship withdrawals described above.