You spent 30 years building savings. In retirement, the question flips: which account do you draw from first?
Most federal retirees have money in several places: a traditional TSP, maybe a Roth TSP, an IRA, a brokerage account and cash in the bank. Each one is taxed differently. The order you tap them in can change your lifetime tax bill by tens of thousands of dollars, and it affects your Medicare premiums and how long your money lasts.
Here’s how to think about withdrawal order as a fed, and why the standard advice doesn’t quite fit.
The conventional order, and its blind spot
The textbook sequence goes like this:
- Taxable accounts first (brokerage and savings), since you only pay tax on gains.
- Tax-deferred accounts next (traditional TSP and IRAs), taxed as ordinary income.
- Roth accounts last, so tax-free growth runs as long as possible.
It’s a reasonable starting point. The problem is that it can leave you with very low taxable income in your early retirement years, then a tax spike later. Your traditional TSP keeps growing untouched. Then RMDs start at 73 (or 75 if you were born in 1960 or later), on top of your pension and Social Security. Suddenly you’re in a higher bracket than you were while working, and paying Medicare surcharges too.
The smarter goal isn’t “defer taxes as long as possible.” It’s “pay the lowest total tax over your whole retirement.” That usually means smoothing your taxable income from year to year.
What makes withdrawal order different for feds
- Your pension fills the bottom brackets. A FERS annuity is taxable income every year. It uses up part of your low brackets before you withdraw a dollar, so there’s less room for “cheap” TSP withdrawals than a non-fed might have.
- The FERS supplement changes the early years. If you retire at your MRA, the supplement adds income until 62. When it stops, your income drops, often opening a window for larger traditional TSP withdrawals or Roth conversions.
- The TSP’s age-55 rule. If you separate from service in or after the year you turn 55 (50 for law enforcement, firefighters and other special-category employees), you can take TSP withdrawals without the 10% early penalty. Roll that money to an IRA and you lose this break until 59½. That’s a reason to tap the TSP before an IRA in early retirement.
- You can choose your TSP source. The TSP lets you take withdrawals from your traditional balance, your Roth balance, or both proportionally. That control lets you manage your taxable income year by year. You can’t pick which funds the money comes from, though; withdrawals come out of your funds proportionally.
- Roth TSP has no RMDs. Since 2024, Roth TSP balances aren’t subject to required minimum distributions, so they can stay invested as long as you like.
- Medicare IRMAA looks back two years. Your income at 63 sets your premiums at 65. Big withdrawals in the wrong year can raise Part B and Part D costs.
- Social Security taxation. Up to 85% of your benefit can be taxed depending on your other income. Drawing more from traditional accounts before you claim can lower that later.
A smarter sequence: a fed example
Consider a hypothetical fed who retires at 57 with 30 years of service. She has a FERS pension, a traditional TSP, a smaller Roth TSP and some savings in a brokerage account. She plans to delay Social Security to 70.
| Phase | Income sources | Withdrawal strategy |
|---|---|---|
| Ages 57–62 | Pension + FERS supplement | Draw from traditional TSP up to the top of a target bracket (often 12% or 22%). Use the age-55 rule, so no penalty. Keep the money in the TSP rather than rolling to an IRA. |
| Ages 62–70 | Pension only (supplement ends) | Income drops, so increase traditional TSP withdrawals or do Roth conversions to fill the bracket. Watch IRMAA thresholds starting at 63. Use brokerage savings for extra or one-time costs. |
| Ages 70+ | Pension + Social Security + RMDs | RMDs are smaller because the traditional balance was drawn down earlier. Use Roth and brokerage money for large expenses so they don’t push her into a higher bracket. |
The result is steadier taxable income across retirement instead of a low early period followed by a tax spike. She pays some tax sooner, but often less in total, and her Roth money is left as a flexible, tax-free reserve for later years or for her heirs.
This is one example, not a rule. Your sequence depends on your pension size, balances, health, spending and when you claim Social Security.
The bottom line
There’s no single “right” account to tap first. For most feds, the best approach blends withdrawals from different accounts each year to keep taxable income steady, avoid Medicare surcharges and shrink future RMDs. Your pension, the FERS supplement and the TSP’s age-55 rule make that plan look different from a private-sector retiree’s.
Want to see what withdrawal order would look like for you? Book a Fit Call with Haws Federal Advisors. We’ll map out your income year by year so you know which account to draw from, and when.
This article is for educational purposes only and isn’t tax or investment advice. Consult a qualified professional about your situation.