Taxes on TSP Withdrawal: Understanding the Implications

Nov 4, 2023

At Jones Wealth Management, we value your financial success and believe in equipping you with the right knowledge to make informed decisions. In this article, we will delve into the intricacies of taxes on TSP (Thrift Savings Plan) withdrawals, a critical aspect of financial services and investing.

What is the TSP?

The Thrift Savings Plan (TSP) is a retirement savings plan designed for federal employees and members of the uniformed services. It provides an opportunity to save for retirement through tax-advantaged investments.

Understanding TSP Withdrawals

When it comes time to retire or separate from service, you may consider withdrawing funds from your TSP. However, it's crucial to understand the tax implications associated with these withdrawals.

Withdrawals from your TSP are subject to federal income tax. The funds you withdraw are treated as ordinary income and are taxed at your marginal tax rate for the specific tax year in which you take the withdrawal. It's important to note that if you made any Roth contributions to your TSP account, these withdrawals are tax-free as long as certain conditions are met.

Additionally, if you withdraw from your TSP before the age of 59½, you may be subject to an early withdrawal penalty of 10% unless an exception applies. This penalty is in addition to the ordinary income tax.

Possible Tax Strategies

There are various tax strategies to consider when planning your TSP withdrawals:

  1. Partial withdrawals: Rather than withdrawing the entire balance, you can opt for periodic partial withdrawals to manage taxes more effectively.
  2. Rolling over to an IRA: By rolling over your TSP funds into an Individual Retirement Account (IRA), you may gain more control over your investments and potentially defer taxes on the rollover amount.
  3. Leaving your funds in the TSP: Depending on your specific situation, leaving your funds in the TSP account might be beneficial, especially if you anticipate lower tax rates in the future.

Seek Professional Guidance

The tax implications of TSP withdrawals can be complex, and it's essential to consult a qualified professional who specializes in financial services and investing. At Jones Wealth Management, our experienced advisors can help develop a personalized strategy tailored to your unique circumstances.


Navigating the realm of taxes on TSP withdrawals necessitates a comprehensive understanding of the various factors that come into play. By staying informed and seeking expert guidance, you can make optimal decisions regarding your financial future.

Remember, at Jones Wealth Management, we are committed to providing you with the knowledge and support you need to make sound financial choices. Reach out to our team of experts today to ensure you are well-prepared for your retirement journey.

© 2022 Jones Wealth Management. All rights reserved.

Janet Stone
Thank you for this! 🙌
Nov 9, 2023
Great info on TSP taxes! 📊
Nov 6, 2023