Tax Rules about TSP Payments

Tax Rules

about TSP

Payments

Table of Contents

Resources for Tax Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Tax Reporting and Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Traditional, Roth, or Both. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Traditional Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Roth Money. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Payments That Include Both Traditional and Roth. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Early Withdrawal Penalty Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Rolling Over Your TSP Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Traditional Rollovers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Roth Rollovers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Taxed Loans and Foreclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Taxes on Installments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Installments Expected to Last 10 Years or More or Based on Life Expectancy. . . . . . . . . . . . . . . . . . . . . . . . 7

Installments Expected to Last Less Than 10 Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Life Expectancy Installments and the Early Withdrawal Tax Penalty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Required Minimum Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Ensuring You Receive Your RMD. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RMDs May Not Be Rolled Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax Withholding from RMDs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

RMDs from Beneficiary Participant Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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Death Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Qualifying Orders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

TSP Payments to Nonresident Aliens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Tax Withholding on Payments to Nonresident Aliens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Beneficiaries and Court-ordered Payees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Special Tax Treatment if You Were Born Before January 2, 1936 . . . . . . . . . . . . . . . . . . . . . . . 18

Table: Tax Treatment for TSP Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Uniform Lifetime Table for Calculating Minimum Distributions. . . . . . . . . . . . . . . . . . . . . . . . 20

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Table of Contents (continued)

Single Life Table for Calculating Minimum Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Glossary of Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

ThriftLine Service Center. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

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Resources for Tax Information

Before making any decisions about taking money from your Thrift Savings Plan (TSP) account, you

should review the important information in this booklet. Because tax rules are complex, you may also

wish to speak with a tax advisor or the Internal Revenue Service (IRS). The TSP can assist you with your

withdrawal, but we cannot provide tax advice.

You can find more information on the tax treatment of payments from retirement plans like the TSP in IRS

Publication 575, Pension and Annuity Income; IRS Publication 590, Individual Retirement Arrangements

(IRAs); and IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits.

Tax Reporting and Withholding

We report all TSP distributions and withdrawals to the IRS, to the appropriate state tax agencies if

applicable, and to you on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or ProfitSharing Plans, IRAs, Insurance Contracts, etc. Distributions from beneficiary participant accounts will be

reported as death payments on IRS Form 1099-R.

In most cases, we are required to withhold part of the taxable portion of your distribution or withdrawal

for federal income tax. With certain types of payments, you may request that a different percentage

be withheld or that nothing be withheld. Usually you will have the option to make this request when

you¡¯re submitting your distribution or withdrawal request in My Account. Contact us through one of the

ThriftLine Service Center options listed at the end of this booklet for more details. The table on page 19,

¡°Tax Treatment for TSP Payments,¡± shows the withholding rates and the rules that apply to each type of

TSP payment.

We do not withhold for state or local income tax. This does not mean that you don¡¯t have to pay state and

local taxes on your distributions and withdrawals. We report all TSP payments to your state of residence

at the time of the payment (if that state has an income tax). Consult a tax advisor or state or local tax

officials for specific information.

Traditional, Roth, or Both

How payments from your TSP account get taxed depends on whether you have traditional money, Roth

money, or both. Members of the uniformed services might also have tax-exempt pay included in their

accounts as a result of contributing pay earned in a combat zone. Tax-exempt pay also must be designated

as Roth or traditional, but it creates a special circumstance when it¡¯s part of your traditional balance.

Traditional Money

Any payment from your traditional balance is considered taxable income since you¡¯ve deferred paying

taxes on this money. This includes your contributions, any agency or service contributions, and the

earnings.

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