TSP taxation


Q. I’m 55 and a civilian employee. I’m retired Air Force, with a bit in my military TSP and a growing amount in my civilian TSP. I’ve just started converting all of my future TSP contributions to go to Roth, for one main reason: I plan to retire at age 62, and we’re going to take a lump-sum distribution of my TSP to purchase a house (won’t be eligible for a mortgage). The TSP balance at the time will be about $400,000 or so (hopefully closer to $500,000). I estimate that roughly 40-50 percent of it will be Traditional, and the rest Roth. From a tax perspective, would it make more sense to start taking money out prior to that time, i.e., starting when I’m about 60, so that I’m not hit with a huge tax bill? And, can I take withdrawals while also continuing to contribute?

A. The answer is: “It depends.” The only way to know which strategy will be best for you is to run pro-forma tax returns for all of the years in question for each of the scenarios you are considering. You’ll find the rules governing withdrawals and contributions, which also depend upon your circumstances and more information than you have provided here at www.tsp.gov.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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