Thrift Savings Plan Taxes and Calculator. Plan your federal employee retirement savings! Use our TSP withdrawal calculator to understand taxes and maximize your benefits.
TSP Taxation and Withdrawal Calculator for Your Federal Retirement
The Thrift Savings Plan (TSP) is a vital retirement savings tool for federal employees and members of the uniformed services. Understanding the tax implications of traditional and Roth TSP accounts is essential when planning an income strategy for retirement, plus – learn how to use the TSP withdrawal calculator.
TSP Withdrawal and Tax Rules: State and Federal
When you withdraw money from your TSP account balance, it’s important to understand the tax implications. Traditional TSP withdrawals are subject to federal income tax, while Roth withdrawals may be tax-free if certain conditions are met. Also – only some states tax the federal retirement plan. Traditional funds are subject to Required Minimum Distributions and can incur a 10% penalty on top of federal taxes due if withdrawn before the qualifying age – typically 59 and 1/2.
Differences Between Roth and Traditional TSP Accounts
Roth TSP accounts allow you to pay taxes on your contributions upfront, which means qualified withdrawals in retirement can be tax-free. In contrast, traditional TSP accounts let you defer taxes until you make a withdrawal, which can affect your retirement income strategy. Knowing your TSP balance and understanding the tax benefits of each option can help you make informed decisions. For Roth TSP withdrawals to be tax-free, certain conditions must be met, particularly the 5-year rule. To qualify for tax-free withdrawals from your Roth TSP, you need to have held your Roth TSP account for at least five years. This rule applies to the first contribution you made to your Roth TSP. If you withdraw funds before this period, your earnings might be subject to federal income tax and potentially state taxes. To avoid penalties, any earnings must be withdrawn at age 59.5 or later. (Read this article about withdrawing TSP funds without penalty at age 55 in retirement.) Meeting these conditions allows you to withdraw your contributions and earnings from your TSP account tax-free.
States that Tax Withdrawals from the Thrift Savings Account
When considering TSP withdrawals from a Thrift Savings Plan, it’s essential to understand how different states tax retirement income. Some states do not impose taxes on TSP withdrawals, allowing retirees to maximize their savings. States like Florida, Texas, and Washington do not tax retirement income. This can significantly impact your overall financial strategy, especially when planning for required minimum distributions or if you are considering purchasing an annuity. Conversely, other states require you to pay taxes on your withdrawals from the TSP, whether it is the full amount or just a portion. For those looking to optimize their TSP withdrawal strategy, using a tax calculator can help assess the potential tax implications based on your state of residence. Always consult a financial advisor for detailed information on how your state treats TSP withdrawals.
| State | Tax traditional TSP withdraws? | Tax FERS/CSRS Income? | Tax Social Security? |
|---|---|---|---|
| Alabama | YES | NO | NO |
| Alaska | NO | NO | NO |
| Arizona | YES | YES | NO |
| Arkansas | YES | YES | NO |
| California | YES | YES | NO |
| Colorado | YES | YES | YES |
| Connecticut | YES | YES | YES |
| Delaware | YES | YES | NO |
| Florida | NO | NO | NO |
| Georgia | YES | YES | NO |
| Hawaii | YES | NO | NO |
| Idaho | YES | YES | NO |
| Illinois | NO | NO | NO |
| Indiana | YES | YES | NO |
| Iowa | YES | YES | NO |
| Kansas | YES | YES | YES |
| Kentucky | YES | YES | NO |
| Louisiana | YES | YES | NO |
| Maine | YES | YES | NO |
| Maryland | YES | YES | NO |
| Massachusetts | YES | YES | NO |
| Michigan | YES | YES | NO |
| Minnesota | YES | YES | YES |
| Mississippi | NO | NO | NO |
| Missouri | YES | YES | YES |
| Montana | YES | YES | YES |
| Nebraska | YES | YES | YES |
| Nevada | NO | NO | NO |
| New Hampshire | NO | NO | NO |
| New Jersey | YES | YES | NO |
| New Mexico | YES | YES | YES |
| New York* | YES | NO | NO |
| North Carolina | YES | YES | NO |
| North Dakota | YES | YES | YES |
| Ohio | YES | YES | NO |
| Oklahoma | YES | YES | NO |
| Oregon | YES | YES | NO |
| Pennsylvania | NO | NO | NO |
| Rhode Island | YES | YES | YES |
| South Carolina | YES | YES | NO |
| South Dakota | NO | NO | NO |
| Tennessee | NO | NO | NO |
| Texas | NO | NO | NO |
| Utah | YES | YES | YES |
| Vermont | YES | YES | YES |
| Virginia | YES | YES | NO |
| Washington | NO | NO | NO |
| Washington, DC | YES | YES | NO |
| West Virginia | YES | YES | YES |
| Wisconsin | YES | YES | NO |
| Wyoming | NO | NO | NO |
*If you are a federal retiree in New York, your FERS or CSRS pension will likely be exempt from NY state tax. However, your TSP withdrawals will be subject to NY state income tax unless they fall within the $20,000 annual retirement income exclusion for those 59½ or older. If your total retirement income from sources other than your federal/NYS pension exceeds $20,000, the amount over that threshold will be taxed by New York State
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Using the TSP Calculator to Estimate Retirement Income
To estimate how much you can withdraw from your TSP account, use the TSP withdrawal calculator. This tool can help federal employees and military members assess their withdrawal options and plan effectively for your retirement income.
Calculator for TSP Participants Assistance with Retirement Planning
The TSP withdrawal calculator provided on our website is a valuable tool for estimating how much you can withdraw during retirement while considering tax implications. Use this free calculator tool to assess your withdrawal options and understand how much money from your TSP account you can use for living expenses. Making a TSP distribution without understanding how it overall fits as a part of your TSP investment strategy and income management plan can have negative financial consequences.
Meet with a federal benefits expert first.
Required Minimum Distributions and In-Service Withdrawals
As you approach retirement, be aware of required minimum distributions (RMDs) that must be taken from your TSP account. Additionally, if you’re still working, you may have the option for in-service withdrawals, which allow you to access funds without penalty under certain conditions. The Thrift Savings Plan (TSP) offers various withdrawal options for federal employees and members of the uniformed services, allowing them to manage their retirement savings effectively. Understanding these options is crucial for maximizing retirement income and tax benefits.
In-Service TSP Withdrawals and Loans
An in-service withdrawal allows TSP participants to take money from their TSP account while still employed. This option can be beneficial for those who need immediate access to funds. However, it is essential to consider the tax implications, as withdrawals from traditional funds are subject to federal income tax. A portion of your TSP can be rolled over into an IRA at age 59.5 without any tax consequences, even if still working. If not yet at a qualifying age, a loan from the savings plan should be explored before you request a distribution and incur an early withdrawal penalty. TSP loans should be treated as a last resort. That being said, they can provide participants with the ability to borrow against their TSP account balance. This can be a useful way to access funds without incurring immediate tax consequences, as long as the loan is repaid within the designated time frame. (Read: Are TSP Loans Really Double Taxed?)
Required Minimum Distributions (RMDs) from Money in Your TSP Account
As retirement approaches, participants must be aware of required minimum distributions (RMDs). These distributions are mandated by the IRS and must begin by age 73, ensuring that individuals withdraw a portion of their retirement savings to pay taxes on the income generated from their TSP funds. If still working at this age, you are not required to take money from your account.
Withdraws in Retirement, including lifetime Annuity
Upon retirement after working for the federal government, you have several options to consider when taking money from your TSP. They can choose to withdraw a lump sum, set up regular payments, or purchase an annuity. Participants may opt to purchase an annuity through our outside vendor, which can provide a steady stream of income during retirement. The full amount can also be rolled over into an IRA or Roth IRA and managed by a fiduciary financial planner that you can trust. Make sure you understand your options before you request a withdrawal or distribution from your TSP or another eligible employer plan.
Planning for Withdrawals from Your Federal Retirement Account
It is essential to make informed decisions about your TSP account withdrawals. Utilizing the TSP withdrawal calculator can help estimate the potential tax implications and income you could receive, ensuring you are prepared for retirement. Effective retirement planning involves understanding the various TSP withdrawal options available, including in-service withdrawals, loans, and annuity purchases. By considering these factors and using available calculators, you can maximize your retirement savings and income. Make sure you’re aware of the tax rules regarding your qualified retirement plan and how they impact your financial future.
Reach Out to Us!
If you have additional federal benefit questions, contact our team of CERTIFIED FINANCIAL PLANNER™ (CFP®), Chartered Federal Employee Benefits Consultants (ChFEBC℠), and Accredited Investment Fiduciary (AIF) professionals. At PlanWell, we are federal employee financial advisors with a focus on retirement planning. Learn more about our process designed for the career fed.
Preparing for federal retirement? Check out our scheduled federal retirement workshops. Sign up for our no-cost federal retirement webinars here! Make sure to plan ahead and reserve your seat for our FERS webinar, held every three weeks. Want to have PlanWell host a federal retirement seminar for your agency? Reach out, and we’ll collaborate with HR to arrange an on-site FERS seminar.
Want to fast-track your federal retirement plan? Skip the FERS webinar and start a one-on-one conversation with a ChFEBC today. You can schedule a one-on-one meeting here.
