When a federal employee retires from federal service, the retired employee has several options to withdrawing their Thrift Savings Plan (TSP) accounts. This column is the first of four columns discussing TSP withdrawal options for retired TSP participants and will present the partial TSP distribution withdrawal option.
Upon retiring from federal service, a TSP participant can immediately withdraw from his or her traditional TSP account, Roth TSP account, or a combination of both accounts. The retired TSP participant can request at any time a partial distribution of at least $1,000. A partial distribution is permitted even if the TSP participant is currently receiving installment payments, either fixed dollar installment payments (which include an annual fixed dollar installment payment, quarterly fixed dollar installment payments, or monthly fixed dollar installment payments) or installment payments based on life expectancy. Note that once a TSP participant requests a total distribution of his or her entire TSP accounts, both types of installment payments and partial distributions will cease.
A TSP participant who is still in federal service can request a partial distribution if the participant is at least age 59.5. This is what called an “in-service” TSP withdrawals.
Traditional TSP, Roth TSP or a Combined Traditional and Roth TSP Partial Distribution
If a TSP participant has both a traditional TSP and a Roth TSP account, and the TSP participant requests a partial distribution, then the TSP participant can specify which TSP account the partial distribution should be taken from. The TSP participant can request that the partial distribution come only from the traditional TSP account, come only from the Roth TSP account, or “pro-rata” from both TSP accounts. “Pro-rata” means that the partial distribution will consist of the same percentage of the traditional TSP and the Roth TSP currently in the accounts at the time of the partial distribution request. The following example illustrates:
Example 1. Frank has both a traditional TSP account and a Roth TSP account. Frank’s combined TSP account balance is $1 million in which the traditional TSP account balance is $750,000 (75 percent of the total) and the Roth TSP account balance is $250,000 (25 percent of the total). Frank requests a pro-rata partial distribution of $20,000. Frank’s partial distribution will consist of $15,000 (75% of $20,000) of traditional TSP money and $5,000 (25% of $20,000) of Roth TSP money.
Taxes on Partial TSP Distributions
Traditional TSP partial distributions are subject to full federal income tax and, if applicable, state income taxes. The TSP will automatically withdraw 20 percent federal income tax on partial distributions from a traditional TSP account. A traditional TSP participant can request additional federal income tax (more than 20 percent) but not lower than 20 percent. For example, a TSP participant who is in a 12 percent federal marginal tax bracket cannot request 12 percent federal income tax withheld on a partial traditional TSP distribution.
A TSP participant can request that part of a traditional TSP partial distribution be directly rolled over to a traditional IRA or to a traditional qualified retirement plan (for example, a traditional 401(k) retirement plan). In that case, the only portion of a traditional TSP partial distribution that would not be subject to mandatory federal income tax withholding is the portion of the distribution that is directly rolled over to either a traditional IRA or to a traditional qualified retirement plan.
The TSP does not withhold state income taxes. If a traditional TSP participant is a resident of a state with a state and local income tax, the TSP participant is responsible for paying any state and local income taxes resulting from a partial traditional TSP distribution.
A traditional TSP participant can make penalty-free (that is, no IRS 10 percent early withdrawal penalty) if they retire or leave federal service sometime during the year or after the year they become age 55. If they retire from federal service before age 55 (such as through a Voluntary Early Retirement Authority, Voluntary Separation Incentive Payment, or a Discontinued Service Retirement) , then the employee will have to wait until they become age 59.5 in order to make penalty-free traditional TSP withdrawals. The following example illustrates:
Example 2. Janet, aged 45, retired from federal service under a VERA on June 30, 2025. Janet will have to wait until she is at least age 59.5 in order to request a partial traditional TSP distribution and avoid a 10 percent early withdrawal penalty.
In order for a Roth TSP participant to make a partial distribution and avoid paying federal and state income tax on the accrued earnings of the partial Roth distribution, the Roth TSP participant must meet two requirements, namely: (1) The Roth TSP participant must be at least age 59.5; and (2) It has been at least five years since January 1st of the year the Roth TSP participant made his or her first Roth TSP contribution.
Limitation on Number of Partial TSP Distributions
A TSP participant is limited each year as to how many partial distributions the participant may request. A TSP participant who has retired from federal service or left federal service sometime during or after the year the participant has become age 55 is limited to 12 partial distributions per calendar year. No more than one partial distribution may be requested every 30 calendar days.
A TSP participant who is still in federal service and at least age 59.5 can request no more than four partial distributions per calendar year. No more than one partial distribution may be requested every 30 days.
Directly Rolling Over a Partial TSP Distribution
A TSP participant can directly rollover a portion of their partial distribution to an IRA or to an eligible employee retirement plan. For example, a portion of a partial traditional TSP distribution may be directly rolled over to a traditional IRA or to a traditional 401(k) retirement plan. A portion of a partial Roth TSP distribution may be rolled over to a Roth IRA or to a Roth 401(k) retirement plan. Any tax-deferred amounts, from the traditional TSP, which are rolled over will retain their tax-deferred status until they are distributed.
Traditional TSP Partial Distributions Count Towards Annual TSP Required Minimum Distribution
For those TSP participants who are retired from federal service and who have reached their required beginning date (currently age 73) and therefore must take a required minimum distribution (RMD) from their traditional TSP, a partial distribution from the traditional TSP will count towards the annual traditional TSP RMD. Note that effective January 1, 2024, the Roth TSP is not included in the calculation of the annual TSP RMD.