TSP Withdrawal Strategies: Timing Your Retirement Funds
TSP withdrawal strategies have gotten complicated with all the tax implications, penalty considerations, and optimal timing decisions flying around. As someone who managed retirement accounts and counseled service members on withdrawal planning, I learned everything there is to know about accessing your TSP funds efficiently. Today, I will share it all with you.
The basic rule: you can withdraw penalty-free once you separate from service in the year you turn 55 or later. Withdraw earlier and you pay a 10% penalty plus income tax (unless you’re disabled or meet other exceptions). Traditional TSP withdrawals are taxed as ordinary income, while Roth TSP withdrawals come out tax-free if your account is at least 5 years old.
Probably should have led with this section, honestly. Your withdrawal options include: leaving it in TSP and taking monthly payments, purchasing an annuity, taking a full withdrawal, or combining these approaches. Each strategy has tax implications and impacts your lifetime income differently. Consider waiting until age 59½ for maximum flexibility, or even 72 when required minimum distributions begin.
That’s what makes TSP withdrawal planning endearing to us financially-savvy retirees—strategic timing can save tens of thousands in taxes over your retirement. Work with financial advisors who understand military retirement to optimize your specific situation, coordinate with your pension and any civilian employment income, and minimize your total tax burden.
