Q. I retired 2+ years ago under FERS with a substantial TSP account that I have not touched. I am looking at purchasing an annuity through TSP versus regular payments based on life expectancy (essentially the IRS required minimum withdrawals that I must start next year). I understand how the RMD is taxed. How will the annuity be taxed? Is there a source that explains the calculation?
A. It’s fairly simple: Any immediate annuity payments produced by traditional TSP purchase money will be taxed as ordinary income. Any annuity payments produced by purchase money from the Roth TSP will be tax-free.
