TSP Withdrawal Rules After Federal Service 2025

Understanding TSP Withdrawal Options After Leaving Federal Service

Leaving your federal position doesn’t mean you have to make immediate decisions about your Thrift Savings Plan (TSP). In fact, having a deliberate, well-informed plan is more important than ever. The TSP offers a combination of low fees, government-backed security, and flexible withdrawal choices that can support your retirement income for years to come. In 2025, these options are even more accommodating, but you must follow key rules to avoid tax traps and preserve the integrity of your long-term retirement strategy.

Whether you’re retiring, switching careers, or taking time off from federal service, it’s important to understand how your separation affects your TSP. Your withdrawal decisions can impact your income stream, tax liability, and eligibility for future retirement benefits. Let’s explore how to make the most of your options.

When Can You Withdraw From Your TSP?

Once you separate from federal service, you can request a withdrawal from your TSP at any time. There is no mandatory waiting period, and the funds are yours to manage. However, how and when you choose to withdraw will determine whether you owe taxes or penalties, especially if you’re under certain age thresholds.

Traditional TSP Withdrawals

If you leave federal service in the calendar year you turn 55 or older, you can take distributions from your traditional TSP without incurring the 10% early withdrawal penalty.
For special-category employees such as law enforcement officers, firefighters, and air traffic controllers, this penalty-free age is reduced to 50, provided they meet the service requirements.
If you separate before these ages, early withdrawals could be subject to a 10% IRS penalty, unless you qualify for other exceptions such as total and permanent disability, court-ordered distributions, or a series of substantially equal periodic payments (SEPPs).

Roth TSP Withdrawals

Roth TSP accounts are governed by a different set of tax rules. Your distributions will only be considered qualified if:

You are at least 59½ years old, and
At least five years have passed since January 1 of the year you made your first Roth contribution.

If either of these conditions is not met, your withdrawal may include a taxable portion and may be subject to penalties. Since withdrawals are treated as pro rata across contributions and earnings, you cannot simply withdraw your contributions without touching your earnings.

What Happens If You Do Nothing After Separating?

Some federal employees assume they must immediately withdraw their TSP upon separation. This is not true. If you prefer, you can leave your account untouched and invested in the same allocation.

If your account holds less than $200, the TSP will automatically distribute the full amount to you in a lump sum. You will have 60 days to roll the funds into another qualified retirement plan to avoid taxation.
If your account contains more than $200, it will remain open indefinitely, allowing you to continue managing your investments. However, you cannot make new contributions unless you return to federal service.

There is no hard deadline for initiating a withdrawal, but you must begin taking Required Minimum Distributions (RMDs) no later than April 1 of the year after you turn 73, unless you’re still employed in federal service. Failing to take your RMD results in a significant penalty equal to 25% of the amount not withdrawn, though this may be reduced to 10% if corrected promptly.

Withdrawal Methods Available in 2025

TSP participants now enjoy a wide range of flexible withdrawal methods. The 2019 modernization expanded options, and by 2025, retirees can fully tailor their distribution strategies to meet evolving income and tax needs.

1. Single (Lump-Sum) Withdrawal

You can request a full or partial lump-sum withdrawal at any time after separation. This could be useful if you have a one-time expense or plan to reinvest the funds elsewhere. However, keep in mind that lump-sum withdrawals are taxable, and large withdrawals may push you into a higher tax bracket.

2. Partial Withdrawals

You can now take unlimited partial withdrawals with no mandatory wait period between them. Each withdrawal must be at least $1,000, and the flexibility means you can draw funds as needed without committing to a fixed schedule.

3. Scheduled Payments

You may opt for automated scheduled payments. These can be configured:

Monthly, quarterly, or annually
By fixed dollar amount or calculated based on life expectancy

You can modify, pause, or stop these payments at any time using the TSP website or by submitting a paper form. Scheduled payments offer predictable income while allowing your remaining balance to continue growing.

4. Life Annuity

If you value stability and predictability, the TSP offers the option to purchase a life annuity using a portion or all of your account. A minimum of $3,500 is required for this option. Once purchased, the annuity is irreversible and no longer part of your TSP. It provides monthly payments for life, and you can choose features like joint-life, inflation adjustments, and guaranteed periods.

Many retirees use a combination of methods. For example, you may take a partial withdrawal to cover immediate expenses, initiate monthly payments for a steady income stream, and later purchase an annuity when you need added stability.

Tax Implications in 2025

The way you structure your withdrawals affects your annual tax liability. Planning ahead can prevent surprises and help you retain more of your retirement savings.

Traditional TSP

Withdrawals are treated as ordinary income.
If you do not qualify for the Rule of 55 or another exception and withdraw before age 59½, you will face the 10% early withdrawal penalty in addition to income taxes.
The amount withdrawn may impact your eligibility for credits or deductions and could affect Medicare Part B premiums due to income-based surcharges.

Roth TSP

Qualified withdrawals are fully tax-free.
Non-qualified withdrawals will result in taxation of earnings and possibly a penalty.
Because Roth TSP withdrawals are pro rata, it’s important to understand what percentage of your withdrawal includes taxable earnings.

Rollovers and Transfers

You can roll your TSP funds into another retirement account to defer taxes:

Traditional TSP to Traditional IRA: No tax consequences if done directly.
Roth TSP to Roth IRA: No immediate taxes if done correctly, but ensure you meet the 5-year holding period in the receiving Roth IRA.

If you receive the withdrawal as a check payable to you, the TSP will withhold 20% for federal taxes. A direct rollover avoids this withholding.

Required Minimum Distributions (RMDs)

RMDs apply once you reach age 73. Your first RMD is due by April 1 of the year after you turn 73, and subsequent RMDs are due annually by December 31.

RMDs apply to both traditional and Roth TSP accounts (unless the Roth is rolled into a Roth IRA).
The TSP can automatically calculate and send your RMD, or you can take responsibility for initiating the withdrawal.

Missing your RMD triggers a 25% excise tax on the shortfall, though you may qualify for a reduction to 10% if corrected within two years.

Special Considerations for Roth TSP

The Roth TSP provides valuable tax-free income in retirement if managed properly:

You must meet the 5-year rule and the 59½ age requirement for qualified tax-free withdrawals.
Rolling your Roth TSP into a Roth IRA may offer better tax treatment and eliminate RMDs entirely.
If you open a new Roth IRA just to receive a rollover, the 5-year clock starts over for the IRA.

If you have an existing Roth IRA that satisfies the holding requirement, rolling the Roth TSP into that account allows for continued tax-free growth and simplifies your retirement tax management.

What If You Return to Federal Service?

Some federal employees return to government employment after retirement or separation. If that happens:

Your previous TSP account can be reactivated for contributions.
Withdrawals you already took remain permanent and cannot be reversed.
If you previously took advantage of the Rule of 55 or similar early-access provisions, returning to service does not reset eligibility.

You may consider combining your past and new contributions, but new withdrawal eligibility will depend on your updated age and service timeline.

Common Mistakes to Avoid

Retirement planning is complex, and even experienced savers can make costly errors. Some pitfalls to avoid include:

Taking a large withdrawal in one year, resulting in a higher tax bracket
Forgetting about the Roth 5-year rule, leading to unexpected taxes on earnings
Ignoring RMD deadlines and facing penalties
Rolling Roth TSP into a new Roth IRA without considering the 5-year reset
Overlooking the importance of beneficiary designations, especially after major life changes like marriage, divorce, or death

Review your account annually and update your strategy as your goals evolve.

Reasons to Leave Funds in Your TSP

For many retirees, keeping funds in the TSP is a wise move:

Low-cost structure: Administrative expenses are among the lowest in the retirement industry.
Diversified investment options: The Lifecycle (L) Funds adjust risk automatically as you age.
Stable withdrawal features: Flexible and predictable withdrawal rules
Federal legal protection: Your account is backed by strong consumer protections.
Portability: You can still roll in eligible retirement funds from other plans.

If you prefer a wide array of investment choices or want to consolidate accounts, you may still consider rolling funds into an IRA.

Planning Your Retirement Income With Confidence

Withdrawing from your TSP account after federal service can feel complex, but it doesn’t have to be overwhelming. In 2025, you have more control over how and when you take your money than ever before. Whether you opt for flexibility, stability, or a blend of both, a thoughtful approach will serve you well.

Understanding the rules for traditional and Roth accounts, meeting age and timeline requirements, and coordinating with other retirement assets are all key to long-term financial security.

If you want to create a strategy tailored to your unique needs, reach out to a licensed agent listed on this website for professional advice and personal assistance.

Withdrawing Your TSP Account After Federal Service