How the TSP Calculates the Required Minimum Distribution (RMD)

This is the third of four columns discussing the fundamentals of required minimum distributions (RMDs).

This column discusses how the Thrift Savings Plan calculates the TSP RMD.

SEE ALSO:

• Thrift Savings Plan RMD and IRA Planning Strategies
• Understanding the Differences and Similarities in RMD Rules Between the TSP and IRAs

Federal employees who left or retired from federal service and reached a specific age must begin receiving their TSP RMD. The specific age, called the TSP RMD age, is referred to as the required beginning date (RBD) and is gradually increasing, The RBD depends on when a TSP participant was born.

The table below summarizes the RBD when the first TSP RMD must occur.

The TSP calculates the TSP RMD according to a TSP participant’s age, the TSP participant’s traditional TSP account balance at the end of the previous calendar year, and a life expectancy factor obtained from the IRS’ Uniform Lifetime Table. Note that the RMD calculations will include only the TSP participant’s traditional TSP balance. Effectively January 1,2024 a TSP participant’s Roth TSP balance will not be included in the calculation of a TSP participant’s RMD. Moreover, distributions of Roth TSP money will not count towards satisfying the TSP participant TSP RMD. This is because Roth TSP money is not subject to RMDs.

The first year in which a TSP participant is separated from federal service and has reached his or her applicable age is called the first distribution calendar year. If a TSP participant does not receive enough money from the traditional TSP to meet his or her RMD amount during the first distribution calendar year, then the TSP is required to disburse the balance of the first year TSP RMD by April 1 of the following year. That date is called the required beginning date (RBD).

Ensuring a TSP Participant Receives the TSP RMD

A TSP participant will fully or partly satisfy his or her RMD with any distributions from his or her traditional TSP account during the calendar year. If the participant does not take any distribution from his or her traditional TSP during the year, or if distributions from the traditional TSP balance fall short of the RMD, then the TSP will automatically send the TSP participant the amount that is still required to be withdrawn.

The following section explains the different rules that apply in a TSP participant’s first distribution calendar year, second distribution calendar year and in subsequent distribution calendar years.

What Happens During the First Distribution Calendar Year?

1. Installment payments. If a TSP participant is receiving during the first distribution calendar year installment payments (annually, monthly or quarterly) from the traditional TSP account, combined with any subsequent partial distributions from the TSP account but does not meet the RMD amount, then the TSP will give the TSP participant a payment disbursement from his or her traditional TSP account in March of the following year to satisfy the first distribution year TSP RMD before the April 1st deadline.

2. Partial distributions. A TSP participant’s RMD will be satisfied if the withdrawal amount from the TSP traditional account is at least the amount of the TSP RMD for the first distribution calendar year. If the partial distribution, combined with any subsequent distribution taken from the traditional TSP account does not meet the required TSP RMD, then the TSP will give the TSP participant a payment disbursement from the traditional TSP in March of the following year to satisfy the RMD before the April 1st deadline.

3. TSP annuity. If a TSP participant purchases a TSP annuity with money from the traditional TSP balance, then the TSP will send the TSP participant a separate check for the full TSP RMD before processing the annuity purchase.

What Happens During the Second and Subsequent Distribution Calendar Years?

Since the deadline for a TSP participant’s first distribution calendar year is April 1st of the second distribution calendar year, the TSP will continue to follow the rules just explained for the first two months of the second distribution calendar year unless the first distribution calendar year’s RMD has been satisfied. If the first distribution calendar year RMD is still not satisfied by March 1, then the TSP will send the TSP participant what remains of the first year’s RMD. After that, the TSP participant’s distributions from the traditional TSP account balance will count towards the TSP participant’s second year RMD, using the same rules described for the first distribution calendar year with two important exceptions:

1. December 31 deadline. After the first distribution calendar year, the deadline for a TSP participant’s TSP RMD is December 31st of that same year. That means if a TSP participant has not satisfied his or her RMD by December 1stof that year, the TSP will send the TSP owner the necessary amount from the traditional TSP account at that time.

2. Treatment of annuity purchase. The rule about sending a TSP participant’s annuity purchase before processing any withdrawals that includes an annuity purchase no longer applies after a TSP participant has satisfied hir or her first year calendar year TSP RMD. If a TSP participant purchases a TSP annuity in the second or later distribution calendar year, then the TSP participant’s annuity purchase will satisfy a portion of the TSP participant’s RMD for that year. This is accomplished by using the percentage of the TSP participant’s traditional TSP balance used to purchase the annuity and the same percentage of the TSP participant’s RMD that the annuity purchase will satisfy. For example, if 50 percent of the traditional TSP account is used to purchase a TSP annuity, then 50 percent of the TSP RMD for that year is satisfied.

The same rules apply for the calendar years that follow except that the distributions taken from the traditional TSP account balance in all months of a year count toward that year’s TSP RMD.

RMDs When a TSP Participant is Receiving Installment Payments

If a TSP participant is receiving installment payments that include money from the Roth TSP account, then the Roth portion of the installment payment will not count towards satisfying the TSP participant’s RMD. That means that the TSP participant’s installment payments may not satisfy his or her TSP RMD. Additional distributions from the traditional TSP account balance may have to be made in order to satisfy the year’s TSP RMD.

RMDs May Not be Rolled Over

RMDs cannot be rolled over to a traditional IRA or eligible employer retirement plan. If a TSP participant chooses to rollover all or part of distributions in a year in which the TSP participant has an RMD, then the TSP is required to make sure the TSP participant satisfies that year’s TSP RMD before any rollover takes place. The TSP enforces this beginning with the TSP participant’s first requested rollover of the year, whether or not the TSP participant intends to satisfy the TSP RMD later in the year.

Federal Income Tax Withholding from TSP RMDs

With one exception, RMDs are in the Internal Revenue Code category of “non-periodic” installment payments. The TSP must withhold 10 percent for federal income tax withholding unless they hear from the TSP participant. The TSP participant can instruct the TSP to withhold a different percentage (between 0 and 100 percent) by contacting the TSP using one of the ThriftLine options.