The Real Cost of Your TSP RMD (and How to Reduce It)

7 Hidden Costs of Your TSP RMDs — and How to Plan for Them Before They Begin

Your Thrift Savings Plan account may have spent decades compounding without an annual tax bill attached to its investment growth. That changes once you reach your required minimum distribution (RMD) age. The IRS requires you to start withdrawing — and generally paying tax on — a portion of your traditional TSP balance each year, whether you need the income or not.

What catches many federal retirees off guard is that a TSP RMD rarely stays contained to a single tax line. It can raise your Medicare premiums, make more of your Social Security taxable, push some of your income into a higher tax bracket, and complicate charitable giving and survivor planning.

Here are seven ways a TSP RMD can ripple through your finances, and what the rules actually say about each one.

1. It can trigger the Medicare IRMAA surcharge

Medicare Part B and Part D premiums are income-based. The extra amount higher-income beneficiaries pay is called the income-related monthly adjustment amount (IRMAA), and it’s generally based on your modified adjusted gross income (MAGI) from two years earlier — so a large TSP RMD in 2026 can raise your Medicare premiums in 2028.

For 2026, the standard Part B premium is $202.90 per month. Beneficiaries above the income thresholds pay more, as shown below.

Part D carries its own IRMAA surcharge, ranging from $14.50 to $91.00 a month per person in 2026. IRMAA is assessed per person, so a married couple in which both spouses are subject to IRMAA can pay the surcharge twice.

Source: CMS, “2026 Medicare Parts A & B Premiums and Deductibles”

2. It can make more of your Social Security taxable

The IRS determines how much of your Social Security benefit is taxable using what’s commonly called combined income — generally your adjusted gross income, plus tax-exempt interest, plus half of your Social Security benefit.

The thresholds are relatively low and have not been indexed for inflation.

Because taxable FERS annuity income generally contributes to adjusted gross income, some federal retirees may already be near or above these thresholds before their TSP RMD begins. Adding an RMD can increase combined income further and may cause a larger portion of Social Security benefits — up to 85% — to become taxable.

That does not mean Social Security itself is taxed at an 85% tax rate. It means that as much as 85% of the benefit can be included in taxable income.

Source: Social Security Administration, “Benefits Planner: Income Taxes and Your Social Security Benefit”

3. It can push some of your income into a higher tax bracket

A traditional TSP RMD generally adds taxable ordinary income to the taxable portion of your FERS annuity, any taxable Social Security benefits, and other taxable income.

For 2026, the federal brackets are:

The 2026 standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly.

Because RMD amounts generally increase as a percentage of your remaining account balance as you age, a large traditional TSP balance can eventually generate a substantial annual distribution. Combined with taxable annuity income, Social Security and other income, that can cause some retirees to reach a higher marginal tax bracket than they anticipated.

Remember that moving into a higher tax bracket does not cause all of your income to be taxed at the higher rate. Only the portion of taxable income falling within that bracket is taxed at that marginal rate.

Source: IRS, “IRS releases tax inflation adjustments for tax year 2026” (IR-2025-103)

4. TSP RMD mechanics work differently than an IRA’s

This is where the rules become particularly important for TSP participants:

• Only your traditional balance counts. Since 2024, designated Roth account balances in employer retirement plans are no longer subject to lifetime RMDs. If you have both traditional and Roth TSP money, your lifetime RMD requirement does not apply to the Roth balance.
• Your RMD age depends on your birth year. Under current law, people born from 1951 through 1959 generally have an RMD age of 73, while people born in 1960 or later generally have an RMD age of 75. Earlier birth years were subject to previous RMD starting-age rules.
• Your required beginning date generally depends on both your age and retirement. For an employer retirement plan, the required beginning date generally is April 1 of the calendar year following the later of the year in which you reach the applicable RMD age or the year in which you retire. TSP participants should follow the TSP’s rules and current guidance governing distributions from their accounts.
• Your TSP RMD must be satisfied from the TSP. An RMD owed from an IRA does not satisfy the RMD required from an employer retirement plan such as the TSP. Likewise, you cannot simply take an extra distribution from an outside IRA and count it toward the amount that must be distributed from your TSP.
• The TSP has procedures designed to make sure the required amount is distributed. Participants approaching RMD age should review current TSP withdrawal procedures rather than assuming an IRA withdrawal or another retirement distribution will satisfy the TSP requirement.

One other planning issue deserves attention: delaying your first RMD until the following April can result in two taxable RMDs arriving in the same calendar year — your delayed first distribution and your second year’s RMD due by December 31. Depending on your other income, that bunching could affect your tax bracket or Medicare IRMAA.

Source: TSP.gov, “Taking Money From Your Account — Required Minimum Distributions”; IRS, “Retirement Topics — Required Minimum Distributions”

5. Missing it can trigger an excise tax

If you don’t withdraw your full RMD by the applicable deadline, the shortfall can be subject to a federal excise tax.   The tax is generally 25% of the amount you should have withdrawn but didn’t. It can be reduced to 10% when the shortfall is corrected within the applicable correction period.

For TSP participants, this is another reason to understand how the TSP handles RMD payments and to make sure the required amount has actually been distributed by the deadline.  It’s also important not to confuse the aggregation rules for IRAs with employer retirement plans. The IRS allows certain IRA RMD obligations to be satisfied by aggregating distributions among eligible IRAs. RMDs from employer retirement plans generally must be satisfied separately. We cover this distinction in more detail in RMD Aggregation: When RMDs Can (and Can’t) Be Combined.

Source: IRS, “Retirement Topics — Required Minimum Distributions (RMDs)”

6. Charitable giving doesn’t offset a TSP RMD the way it might from an IRA

A qualified charitable distribution (QCD) allows an eligible IRA owner age 70½ or older to transfer money directly from an IRA to an eligible charity.

The annual QCD exclusion limit is $111,000 in 2026. A qualifying QCD can count toward an IRA owner’s RMD for the year while generally being excluded from gross income.

That can make a QCD particularly valuable for retirees who make charitable gifts but take the standard deduction, because the tax benefit doesn’t depend on claiming the charitable contribution as an itemized deduction.

The catch for TSP participants is that QCDs are made from IRAs, not directly from the TSP.

A federal retiree who wants to use this strategy may therefore consider whether rolling some traditional TSP money into an IRA fits into a broader retirement-income strategy.

That decision shouldn’t be made solely for QCD purposes. Moving money from the TSP to an IRA can involve differences in investment choices, expenses, withdrawal options, creditor protections and other features. But if charitable giving will be an important part of your retirement plan, the QCD rules are worth understanding before RMDs begin.

Source: IRS, “Retirement Plans FAQs Regarding IRAs Distributions (Withdrawals)”

7. A surviving spouse can face a much different tax picture

One of the less obvious long-term consequences of retirement-account distributions appears after the death of a spouse.  A surviving spouse can generally continue to use married-filing-jointly status for the year of a spouse’s death if the requirements are met. In subsequent years, however, the survivor may have to file as single unless another filing status applies.

At the same time, the survivor may still have substantial retirement income and distributions from retirement accounts.  That’s where the tax problem can emerge.

The federal tax brackets and standard deduction for single filers are substantially smaller than those for married couples filing jointly. As a result, a survivor can have less household income than the couple had together but still have more of that income fall into higher marginal tax brackets.  For example, in 2026 the 24% bracket for married couples filing jointly doesn’t begin until taxable income exceeds $211,400. For a single filer, it begins above $105,700.

Inherited retirement-account rules can also be complex. The RMD treatment of an inherited TSP account or IRA depends on factors including the beneficiary’s relationship to the original owner and the applicable distribution rules. A surviving spouse has options that may differ from those available to other beneficiaries.  The broader planning issue remains: a couple’s retirement tax strategy shouldn’t necessarily be designed only around the years when both spouses are alive. The surviving spouse’s potential tax situation deserves consideration as well.  This issue is sometimes referred to as the “widow’s penalty” or “survivor’s tax trap.”

Source: IRS, “IRS releases tax inflation adjustments for tax year 2026”; IRS, “Retirement Topics — Beneficiary”

How to plan ahead in your 60s

The most useful time to think about RMDs isn’t when the first one arrives. For many federal employees and retirees, there may be a window of several years in which retirement income and the tax treatment of the TSP can still be managed.

• Consider Roth conversions before RMDs begin. Money successfully converted to Roth is generally not subject to lifetime RMDs for the original owner, and qualified Roth distributions can be tax-free. But a Roth conversion itself generally creates taxable income in the year of conversion. A large conversion can push income into a higher tax bracket and potentially increase Medicare IRMAA two years later, so the amount and timing matter.
• Model your first RMD now. Use your traditional TSP balance and the age at which you expect RMDs to begin to estimate the potential size of future distributions. The actual amount will depend on your future account balance and the applicable IRS life-expectancy factor, but even a rough projection can show whether RMDs are likely to become a meaningful tax issue.
• Look for lower-income years. For some federal retirees, the period after leaving federal employment but before Social Security and RMDs begin may provide an opportunity to recognize income strategically, including possible Roth conversions. Whether that makes sense depends on your individual tax situation.
• Coordinate Social Security and other retirement income. Your FERS annuity, Social Security, TSP withdrawals, investment income and other sources can interact. Looking at them together gives you a better picture of the tax consequences than considering each source separately.
• If charitable giving is part of your plan, evaluate the QCD rules. A retiree who expects to give regularly to charity may want to determine whether having some traditional IRA assets would provide useful flexibility once QCDs become available.
• Think about the surviving spouse. A retirement-income strategy that works well while filing jointly may produce a very different tax result after one spouse dies. Large traditional retirement balances can make this issue more important.
• Revisit FEHB and Medicare coordination alongside your RMD projections. IRMAA is one of the more surprising downstream effects of additional taxable retirement income, particularly because the surcharge is generally based on income from two years earlier.

None of this eliminates a TSP RMD once you’re required to take one. But understanding how traditional TSP distributions can interact with Medicare, Social Security, federal income taxes, charitable giving and survivor planning gives you years of runway to prepare for them rather than reacting after the first RMD arrives.