Note: As of 12/2022, the laws that determined that age that RMDs start have been changed. Here is more information on that.
As I speak with federal employees from around the country, there is nothing that seems to be as feared (and misunderstood) as Required Minimum Distributions (RMDs).
But I have found that most people don’t really understand what RMDs will actually do to their TSP and other retirement money.
If this is all new to you, RMDs are simply the government’s way of making sure you can’t keep money in retirement accounts (like your TSP) forever.
And while we don’t have to like it, RMDs aren’t as bad as many people might think (but sometimes they are).
What are RMDs (Required Minimum Distributions)?
Starting at age 72, the government requires that you withdraw a portion of your TSP every year.
Why do they do this?
Because they want to get a piece of the action. Basically, whenever you withdraw money from your traditional TSP account that is when you pay taxes.
So RMDs force you to start withdrawing instead of keeping your money within the TSP (with taxes unpaid) indefinitely.
Does RMDs Apply to the Roth TSP?
Yes, RMDs do apply to the Roth TSP as well.
But I thought Roth TSP money comes out tax free so why would the government care when I withdraw the money?
Yes, you are right that Roth TSP money often can be withdrawn completely tax free so the government must have another reason for this rule.
One potential reason is that the government would like to limit how much tax free growth you can have in the Roth TSP and this is how they accomplish it.
Now, you have to know that a Roth IRA, while it has many similarities to the Roth TSP, is not subject to RMDs. So the vast majority of the time it can make sense to transfer your Roth TSP money to a Roth IRA before age 72 to avoid RMDs from the Roth TSP all together.
You can learn more about this here.
When Do RMDs Start for the TSP (Thrift Savings Plan)
The magic age for RMDs is 72.
Note: This age used to be 70 and ½ so don’t get confused.
Your first RMD has to be done by April 1st of the year after you turn 72. So in practice, the deadline for your first RMD is April 1st of the year you turn 73.
However, after this first RMD, subsequent RMDs are due by December 31st of each year.
For example, if you were born in November and you are turning 72 in 2025 then this is what your RMD calendar would look like:
Note: As you can see, in this example, if you wait until the beginning of 2026 to take your 1st RMD then you will have to take your 2nd RMD that very same year which can cause a higher taxable income for that year. But you can take your 1st RMD in 2025 to avoid this.
How Much Do I Have to Take out of My TSP for RMDs?
The simple answer is that the amount you have to withdraw is based on your age and the withdrawal percentage gets bigger as you get older.
The longer answer is that the amount is based on a chart like the one below which I pulled from the full version here.
Note: These numbers and charts are updated overtime and I can’t promise to have this post updated every time there is a change so you will want to make sure you are using the right numbers!!!
Once you find your age on the chart then you divide your TSP balance by the distribution period.
TSP RMD Calculation Example
For example, if you are 85 and have a TSP balance of $500,000 then this is how you’d calculate your RMD for the year.
$500,000 / 16 = $31,250
Note: Remember, I got ‘16’ from the above chart next to age 85.
This means that you’d have to withdraw at least $31,250 from your TSP to satisfy your RMD for this year.
Note: The rules for RMDs for IRAs are different so you can’t always rely on this method for your IRA RMDs.
What Happens If You Don’t Take an RMD from Your TSP?
We know how serious Uncle Sam is about something by how badly they penalize those that don’t follow along.
And when it comes to RMDs, Uncle Sam is very serious.
If you fail to take an RMD then you will owe a 50% penalty on your missed RMD.
For example, if you were supposed to withdraw $30,000 as an RMD last year but you didn’t (or just forgot) then you’d have to pay a $15,000 penalty!
But I have some good news. The TSP will automatically withdraw your RMD for you at the end of the year if you don’t do it yourself.
This means that TSP has your back if you forget in a given year but I would certainly still keep an eye on it if I were you.
Note: If you have money in an IRA then you are often on your own to make the RMD happen so you’ll want to make sure you are withdrawing at least your RMD each year.
What Can Make RMDs so Dangerous?
So why is the internet scared of RMDs?
If you’ve made it to this part of the article you probably now understand that RMDs are not nearly as scary as you initially thought.
This is especially true if you are planning to withdraw money from your TSP every year anyway.
However, here are a few things to watch when it comes to RMDs.
Since RMDs require you to take money from your traditional TSP, this will increase your taxable income.
And as your taxable income increases, so can your marginal tax bracket.
Also, the higher your income, the higher your potential Medicare part B premiums will be.
Higher taxable income can also increase the rate that you pay in capital gains taxes as well.
But if you were planning to withdraw at least your RMD amount anyway then the RMD really won’t make you worse off.
Where people get into trouble is when RMDs make them withdraw more than they’d like and thereby triggering some of the negative consequences I mentioned above.
A couple things you can do to lessen the impact of unwanted RMDs is to draw down your TSP before 72 and Roth conversions.
