TSP withdrawals and taxes

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Q. We were discussing Thrift Savings Plan withdrawals at work, and one guy asked why the withdrawals weren’t taxed at two different rates. Part should be ordinary income, and part should be taxed at the capital gains rate. Is this correct? Is that how it is taxed at tax time?

A. TSP withdrawals are considered to be entirely ordinary income for tax purposes.

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  1. TSP is taxed exactly the same as a traditional IRA would be taxed.

    The ‘one guy’ is thinking about a taxable account which you really shouldn’t consider until you max out your TSP and IRA every year.

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