Correction: A previous version of this post misidentified the the tax-exemption characteristic of a Traditional IRA. This post has since been corrected to explain a Traditional IRA is not tax-exempt.
Q. I’m retiring at 50 years of age after 22 years in federal law enforcement. I’m considering withdrawing all my TSP funds to a financial institution under a tax-exempt traditional IRA. I understand there’s no federal tax liability; however, I reside in the state of California. Is there a state tax liability for the withdrawal?
A. If you roll your TSP assets over to a Traditional IRA (which is not tax-exempt, by the way), your tax liability on those assets will continue to be deferred until withdrawn. I generally recommend against doing this unless there is a good reason to do so, however.
