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Financial Information for Senior Military Officers

What You Don't Know About TSP RMDs Could Hurt You

What You Don't Know About TSP RMDs Could Hurt You
One of the main reasons to contribute to TSP is so that you can take the money out and spend it in retirement.  Often though, retirees may not need or want to take their money out of the Thrift Savings Plan (TSP).  But, the IRS wants you to take the money out, more than you want to leave it in TSP and they have the power to make you do it.  You have to take out Required Minimum Distributions (RMDs)

The IRS (Congress more accurately) says that you must start taking distributions from your TSP by April 1st (not the 15th) of the year after you turn 70 1/2.  If you're still employed by the US Government when you turn 70 1/2 then your RMDs are deferred....generally until Apr 1st of the year after retirement.  Realize that if you avail yourself of the 1 Apr option you will have to make two RMDs that year.  One for the age 70 1/2 year and one for the current year. 

Since the IRS "knows all" it knows how long you will live.  There is a table of Uniform Life Expectancy" that you use to determine how much you must take out each year.  It is important that you get this right, as the penalty for withdrawing too little is 50% of the amount you didn't take out.  That is one of the highest penalties I know of.

Whether you are taking RMDs or any other type of distribution, your distribution will be "proportional".  For example, if you have 50% in the Roth TSP, 50% in the "normal" TSP and 5% of your "normal" TSP balance is tax exempt (from contributions made in a combat zone) your distribution will be 50% Roth, 45% normal and 5% Tax Exempt.  The same holds true for funds.  If you have 50% in the G Fund and 50% in the C Fund your distribution will be 50/50 G and C Fund.  Nothing too out of the ordinary here.  Where things do get weird is if you fail to direct TSP to take out distributions.

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