Can I Contribute to TSP After Retirement?

The Thrift Savings Plan (TSP) functions as a retirement savings and investment program designed for federal government employees and uniformed service members, including those in the Ready Reserve. Established by Congress, the TSP provides a defined contribution plan, offering tax benefits and savings opportunities comparable to 401(k) plans commonly found in the private sector.

TSP Contributions After Retirement

Direct contributions from an employee’s salary to the Thrift Savings Plan cease once an individual separates from federal service or military retirement. While new direct contributions are not permitted, individuals can generally roll over eligible distributions from other qualified retirement plans into their existing TSP account, even after retirement. This includes funds from 401(k)s, 403(b)s, or traditional Individual Retirement Accounts (IRAs).

Rolling over funds into a TSP account after separation allows the money to continue benefiting from the plan’s low management fees and growth potential. Both pre-tax (traditional) and after-tax (Roth) funds from other qualified plans can typically be rolled into their respective TSP balances. This process of rolling over funds is distinct from making new contributions and helps maintain tax-deferred growth.

Withdrawal Options for Your TSP Account

Upon separation from federal service or uniformed services, participants have several options for accessing funds from their TSP account. One common method is to take single payments, which can be either a partial distribution of a specified amount or a total distribution of the entire account balance. Partial distributions must be at least $1,000, and while there is no overall limit on the number, only one partial distribution can be taken every 30 calendar days.

Alternatively, participants can elect to receive monthly, quarterly, or annual installment payments from their TSP account. These payments can be set as a fixed dollar amount or calculated based on the participant’s life expectancy. If a fixed amount is chosen, participants can determine any dollar amount, but a large amount could deplete the account before the participant’s death. Payments based on life expectancy are recalculated annually using the account balance and the participant’s updated life expectancy, aiming to provide income throughout retirement.

Another option involves using all or part of the TSP account to purchase a life annuity through an outside vendor. An annuity converts a lump sum into guaranteed monthly payments for life, or for the lives of the participant and a joint annuitant. Once an annuity is purchased, the funds are no longer managed by the participant, and the choice is generally irrevocable. The minimum amount required to purchase an annuity is $3,500, which applies separately to traditional and Roth balances.

Withdrawals from a traditional TSP account are typically taxed as ordinary income, as contributions were made on a pre-tax basis. In contrast, qualified withdrawals from a Roth TSP account are generally tax-free because contributions were made with after-tax dollars. A qualified Roth withdrawal requires the account to have been open for at least five years and the participant to be age 59½ or older, disabled, or deceased. It is also possible to designate beneficiaries for a TSP account, ensuring that funds are distributed according to the participant’s wishes upon death.

Required Minimum Distributions from TSP

Required Minimum Distributions (RMDs) are mandatory annual withdrawals from retirement accounts, including the Thrift Savings Plan, once a participant reaches a certain age. The age at which RMDs begin has changed; for those born between 1951 and 1959, RMDs typically start at age 73, and for those born in 1960 or later, they begin at age 75.

RMDs are calculated by dividing the account balance as of the previous December 31 by a life expectancy factor provided by IRS tables. If a participant fails to take the required RMD, a penalty may be imposed. This penalty can be 25% of the amount not distributed, potentially reduced to 10% if the shortfall is corrected promptly. The TSP will automatically issue a payment if the participant does not take their RMD by the deadline, helping to avoid penalties.

For TSP participants who are still federally employed past the RMD age, they can postpone RMDs from their TSP account until they separate from service. However, RMDs from other retirement accounts, such as IRAs, must still be taken. A significant change, effective starting in 2024, is that Roth TSP balances are no longer subject to RMDs during the account owner’s lifetime. This means that RMD calculations will only include the traditional TSP balance, and only distributions from the traditional balance will count toward satisfying the RMD amount.