This is the fourth of four columns discussing TSP withdrawal options that are available to Thrift Savings Plan (TSP) participants who retire from federal service.
This column will present installment payments. TSP installment payments are automatic payments from a TSP participant’s accounts (traditional TSP account and Roth TSP account). There are two methods for setting the amount of an installment payment. The two methods are a fixed dollar payment amount and a payment based on life expectancy. Both payment methods are discussed.
A TSP participant can choose to receive fixed dollar payments from their account on a monthly basis, on a quarterly (every three months) basis, or on an annual basis. A TSP participant may schedule a date of up to six months in the future for these installment payments to begin. These payments will continue until the TSP participant stops them or until the TSP total account balance equals zero. This is true even if the TSP participant chooses to have the installment payments come from the traditional TSP balance first or from the Roth TSP account balance first. When the TSP participant runs out of money in the participant’s chosen TSP account, then payments will continue from the TSP account that the TSP participant did not choose.
A TSP participant may schedule a date up to six months in the future for these installments to begin. These payments will continue until the TSP participant stops them, or until the TSP total account balance equals zero. This is true even if the TSP participant chooses to have the installment payments come from the traditional TSP balance first or from the Roth TSP account balance first. When the TSP participant runs out of money in the participant’s chosen TSP account, then payments will continue from the TSP account that the TSP participant did not choose.
There are two ways of setting the payment dollar amount, a fixed dollar amount or payments based on life expectancy.
TSP Installment payments of a fixed dollar amount
The TSP participant chooses the amount he or she wants to receive. Minimum amount is $25.
Making changes to fixed dollar installment payments
A TSP participant can stop or make changes to his or her fixed dollar installment payments at any time. Using My Account, the TSP participant can stop existing installment payments and request new installment payments. To make certain changes without stopping the TSP installment payments, the TSP participant must call the ThriftLine (1-877-968-3778).
To make the following changes to installments, the TSP participant must first stop existing installment payments and then request new installment payments, which the TSP participant can perform going online to MyAccount or by calling the ThriftLine (1-877-968-3778):
• Start, stop, or change direct deposit of the TSP participant’s installments if payments go to more than one destination.
• Change the dollar amount of the TSP participant’s payments.
• Change the frequency (monthly, quarterly or annually) of the TSP participant’s payments.
• Change the source TSP account (traditional TSP or Roth TSP) of the TSP installments (traditional, Roth, or both).
• Change the installment type (fixed dollar amount or based on life expectancy).
• Switch from the Single Life Table to the Uniform Lifetime Table when taking required minimum distributions (RMDs).
A TSP participant can make the following changes without stopping installments if the TSP participant calls the ThriftLine (1-877-968-3778):
- Start, stop, or change direct deposit of the TSP participant’s installments if payments go to a single destination.
Change the amount of the TSP participant’s federal income tax withholding. - Start rolling over traditional TSP money (not Roth TSP money) from the TSP participant’s installment payments to a traditional IRA or to an eligible employer-sponsored traditional qualified retirement plan (only if installments are of a fixed dollar amount and expected to last less than 10 years).
- Change or stop rollovers (if the TSP participant is currently doing rollovers).
- Expected duration of installment payments and federal income tax withholding.
The rules for federal tax withholding and eligibility to rollover money to an IRA or to an eligible employer plan are different depending on how long your installments are expected to last. The TSP determines the expected duration of a TSP participant’s installment payments using the TSP participant’s account balance, the payment amount the TSP participant has chosen, and an assumed earnings rate.
If the expected duration of a TSP participant’s installments is less than 10 years, the following IRS rules apply:
• The TSP must withhold 20 percent in federal income taxes of any amount that a TSP participant did not roll over for federal income tax.
• A TSP participant can instruct the TSP to withhold a percentage that’s greater than 20 percent, but you cannot have less federal income withheld or waive federal income tax withholding.
• A TSP participant may rollover all or part of a traditional TSP account installment payments to a traditional IRA or to an eligible employer-sponsored traditional qualified retirement plan.
If the expected duration of the TSP participant’s installment payments is 10 years or more or they are based on life expectancy, the following IRS rules apply:
The TSP is required to withhold federal taxes from any taxable amount as if the TSP participant is single with zero exemptions unless the TSP participant elects a different option (installments payments initiated before 2023 will continue to have withholding as if the TSP participant is married with three dependents unless the TSP participant chooses a different option or does so in the future ). The TSP participant can request that a different percentage be withheld or that nothing be withheld.
• A TSP participant cannot rollover any part of his or her annual TSP required minimum distribution (RMD) to an IRA or eligible employer plan.
The following events will trigger a recalculation of a TSP participant’s expected installment duration:
• A TSP participant changes the dollar amount or frequency of installment payments.
• A TSP participant makes a rollover contribution to his or her TSP account.
• A TSP participant takes a distribution or purchases a TSP annuity in addition to the TSP participant’s installment payments.
TSP Installment payments based on life expectancy
A TSP participant will have the TSP compute the annual distribution (and paid in 12 equal monthly payments) based on one of two IRS life expectancy tables. The initial payment will be based on the TSP participant’s age and the amount of a TSP participant’s traditional TSP account (or Roth IRA account) balance at the time of the first payment. Note that life expectancy payments are calculated using the participant’s entire traditional TSP (or Roth) account balance. Each January, the TSP will recalculate the amount of the installment payment for that year. The recalculation will be based on the TSP participant’s current year age and the traditional TSP account balance at the end of the preceding year.
·As mentioned above, the TSP uses one of two IRS life expectancy tables to compute the annual distribution: The following is information about these life expectancy tables:
Payments based on life expectancy are determined using IRS tables, with the Single Life Expectancy Table available before RMD age and the Uniform Lifetime Table required at and after RMD age, with no option to revert to the Single Life Expectancy Table.
IRS Life Expectancy Tables — IRS Single Life Table, Treas Reg § 1 401(a)(9)-9, Q&A 1, is used to calculate installments based on life expectancy for participants who have not yet reached the required minimum distribution (RMD) age when installments begin. These participants may choose to switch to the Uniform Lifetime Table, Treas Reg § 1 401(a)(9)-9, Q&A 2, when they reach RMD age This decision cannot be reversed. The Uniform Lifetime Table will be used for participants who have already reached the RMD age when payments begin. There is no option to switch to the Single Life Table for these participants.
A portion of the IRS Single Life Table, Treas Reg § 1 401(a)(9)-9, Q&A 1 is presented here*:
*From 2025 IRS Publication 590-B (https://www.irs.gov/pub/irs-pdf/p590b.pdf).
IRS’ Uniform Lifetime Table, Treas Reg § 1 401(a)(9)-9, Q&A 2 is presented here*:
*From 2025 IRS Publication 590-B (https://www.irs.gov/pub/irs-pdf/p590b.pdf).
The following is an example of a federal employee who retired from federal service and elected TSP installment payments based on life expectancy:
(1) Name of TSP participant: Shirley
(2) Age of participant: 65
(3) Retired from Federal service on December 31,2023 at age 65..
About one month after retiring from federal service, Shirley requests online (using Form TSP-99: Withdrawal Request for Separated and Beneficiary Participants – Civilians) that starting immediately (for the year 2024) she will receive monthly payments based on life expectancy from her traditional TSP account. Her traditional TSP account balance as of 12/31/2023 was equal to $1,200,000.
(6) The TSP will compute Sylvia’s monthly payments for the year 2024 based on the $1,200,00 account balance as of 12/31/2023, and Shirley’s single life expectancy (age 66 during 2024) from the IRS’ single life expectancy table (shown above). Monthly payments in future years will be recomputed based on the account balance on the previous December 31 and Sylvia’s recomputed life expectancy factor based on her age in the current year.
For 2024 (when Sylvia will become age 66): Sylvia’s annual payment is computed as follows:
$1,200,000 (account balance as of December 31,2023)/22.0 (single life expectancy factor for age 66)
= $54,545 (annual payment for the year 2024)
or $4,545 (monthly payment for the year 2024)
Sylvia’s annual and monthly TSP payments for the years 2024-2027 based on life expectancy are summarized in the following table:
Sylvia’s TSP Installment Payments Based on Life Expectancy for the Period 2024 -2027
Some observations from the table that illustrates Sylvia’s annual and monthly payments for the years 2024 through 2027:
1. As Sylvia gets older, the single life expectancy factor decreases.
2. Sylvia’s $1,200,000 starting traditional TSP account balance (as of 12/31/2023) generally decreases through the years but can increase depending on investment performance.. Her annual payment will fluctuate from one year to the next depending on the investment performance of the account during the previous year.
3. If Sylvia is concerned or uneasy about the variation in the annual payment for the purpose of meeting his annual budget needs, she is allowed to switch to fixed dollar installment payments (monthly, quarterly or annually) (minimum monthly amount $25) that she can increase, decrease, or even stop.
4. If Sylvia does switch to fixed dollar payments, then under a new TSP rule (that took effect August 2020) Sylvia can switch back to receiving payments based on life expectancy.
5. Once Sylvia becomes aged 73 (reaches her required beginning date and therefore her traditional TSP account is subject to required minimum distributions), she can switch to the Uniform Lifetime Table in the determination of her annual payment. The reason that Sylvia may want to make that switch is because the life expectancy factors in the Uniform Lifetime table are generally larger than the life expectancy factors in the Single Life Expectancy table. This switch may result in a smaller annual payment (and therefore smaller federal and state income tax liabilities on traditional TSP payments).
6. Before Sylvia reaches her required beginning date of age 73 in 2031, the TSP will withhold from each monthly payment a minimum 20 percent federal income tax. Once Sylvia turns 73 and informs the TSP to use the Uniform Lifetime Table to compute her monthly payment, the TSP will hold a minimum 10 percent federal income tax.
7. The TSP does not withhold state income taxes from traditional TSP payments. If Sylvia lives in a state which has a state income tax, then Sylvia must make arrangements to pay the state income tax that she owes on her traditional TSP payments.
8. To request a fixed installment payment or installment payments based on life expectancy, a TSP participant must log into his or her “My Account” at www.tsp.gov and check on the “Withdrawals and Changes to Installment Payments” link on the menu. From there, a TSP participant will have access to an online tool with which to start withdrawals.