How TSP RMDs & Rollovers Work At Age 73
Why does the IRS want you to take Required Minimum Distributions (RMDs) from your traditional Thrift Savings Plan (TSP) at age 73? The short answer: taxes. The RMD rules were put into place to make sure people were not using tax-deferred retirement savings accounts to avoid paying income taxes owed to Uncle Sam.
Recent Changes To The Age For RMDs
Effective January 1, 2023, the SECURE Act 2.0 raised the RMD age to 73 for those born after December 31, 1950. Starting in 2033, the age for RMDs will increase to 75. Even better - as of January 1, 2024, Roth TSP balances are no longer subject to RMDs. Currently, these are the RMD requirements for withdrawals from your traditional TSP in retirement:
- If you do not begin withdrawing from your TSP account balance in the year you turn 73, the TSP is required to make the required distribution to you by April 1 of the following year.
- If you separate from federal service after age 73, your account will immediately be subject to the IRS minimum distribution requirements.
- If you’re already receiving installment payments from your TSP when you turn 73, the total amount will be used to satisfy the minimum distributions requirement. If the total amount does not satisfy the minimum distribution requirement, the TSP will issue a supplemental payment for the remaining amount.
For complete information, go to the TSP website and download: Tax Rules About TSP Payments.
“You must take your RMD before completing any rollover.”
Understanding TSP Rollovers At Age 73
Though the age requirement for RMDs appears straightforward, things get complicated if you’re 73 and considering a rollover from your TSP to an IRA.
If you’re retired, you must take your RMD before completing any rollover. If you fail to take your RMD before the rollover, the rollover amount is considered an excess contribution to your IRA and subject to a penalty. Can you transfer your RMD to an IRA? No. Under IRS rules, you must satisfy the RMD first before any transfer takes place.
It’s important to note that RMDs from your TSP account are not required if you’re still employed. If you’re 73 and still working, you could rollover funds from your TSP to a traditional IRA without being subject to an excess contribution penalty and taxes.
If this seems quite confusing, you’re not alone. That’s why it’s important to work with an FRC® trained advisor who fully understands your federal benefits. When you’re 73 and subject to RMDs, making decisions about rollovers is not something you can easily do yourself.
Source: https://www.tsp.gov/living-in-retirement/making-a-withdrawal/
