Frank retired from the Defense Logistics Agency at 62 and spent the next decade doing what he'd planned: fishing, a little consulting, and leaving his TSP alone. At 73, he opened a December statement and saw a withdrawal he hadn't requested. The TSP had sent him about $31,000, and his tax preparer's first question in April was, "Did you plan for this?"

He hadn't. The money wasn't a mistake. It was a required minimum distribution, and the bill for ignoring it can be steep.

What the rule actually does

You got a tax deduction, or tax-deferred growth, on traditional TSP and IRA money. The IRS eventually wants its share, so it forces you to start withdrawing at a set age, whether or not you need the cash.

Under current law, that age depends on your birth year:

  • Born 1951 through 1959: age 73
  • Born 1960 or later: age 75

Your first RMD is due by April 1 of the year after you reach that age. Every later one is due December 31. Here's the catch with that April 1 grace period: if you wait, you take two distributions in one calendar year, which can push you into a higher bracket. Many people are better off taking the first one in the year they hit the age.

How the amount is figured

The math is simple. Take your account balance on December 31 of the prior year and divide it by a life expectancy factor from the IRS Uniform Lifetime Table.

Say you turn 73 and your traditional balance was $800,000 at year-end. The factor for age 73 is 26.5.

$800,000 ÷ 26.5 = roughly $30,200

The next year, the factor drops slightly (25.5 at age 74), so the percentage you must withdraw creeps up. At 75, the divisor is 24.6. The tables get updated from time to time, so confirm the current one at irs.gov before you calculate anything yourself.

TSP and IRAs play by different rules

This is where people get tripped up. The two account types follow the same basic formula, but the mechanics differ.

The TSP

The TSP calculates your RMD for you. If you are separated from federal service and reach RMD age, the TSP will send the required amount automatically by December 31 unless you've already withdrawn enough that year. Your RMD is based only on your traditional balance. Starting in 2024, Roth balances in the TSP are no longer subject to lifetime RMDs.

If you're still working for the government, you generally don't have to start TSP RMDs until April 1 of the year after you separate. That exception doesn't apply to your IRAs, which brings us to the next point.

Traditional IRAs

You calculate these yourself, though your custodian will usually give you the number. If you own several traditional IRAs, you figure the RMD for each, add them up, and can take the total from any one of them or any combination. That flexibility is useful.

You cannot, however, mix account types. A TSP RMD must come out of the TSP. An IRA RMD can't be satisfied by a TSP withdrawal, and vice versa.

Roth IRAs

No RMDs for the original owner. Ever. That alone makes Roth money valuable for late-life flexibility and for heirs.

The penalty, and how to soften it

Miss an RMD and the excess accumulation tax is 25% of the amount you should have taken. If you correct the shortfall promptly, generally within two years, it drops to 10%. You'd also file Form 5329 with your return. Some people qualify for a waiver by showing reasonable cause, but you shouldn't plan on it.

Compare that to simply taking the money and paying ordinary income tax. The penalty is almost never worth risking.

Strategies that actually reduce the sting

RMDs are not just a compliance chore. They're a tax planning problem you can start solving a decade early.

Convert to Roth in the gap years

The years between retirement and RMD age are often your lowest-income years. If you retire at 62, delay Social Security, and live off savings or a small pension, you may sit in the 12% or 22% bracket. Converting some traditional money to Roth each year at those rates shrinks the balance that will later be forced out at potentially higher ones.

A realistic example: a retiree with $1.1 million in traditional accounts converts $40,000 a year for eight years. It's not dramatic in any single year, but it can meaningfully reduce the future RMD and the tax on it.

Watch the side effects. A conversion raises your adjusted gross income, which can make more of your Social Security taxable and trigger higher Medicare premiums through IRMAA. Those surcharges look back two years at your income.

Consider moving TSP money to an IRA

Some retirees roll TSP funds into an IRA for investment flexibility or easier Roth conversions. The TSP has some of the lowest fees available, and its G Fund has no true equivalent outside the plan, so this isn't automatically a smart move. But if conversions are central to your plan, an IRA gives you more control over timing and amounts. Weigh it carefully.

Use qualified charitable distributions

If you're charitably inclined, a QCD lets you send money directly from an IRA to a qualified charity, starting at age 70½. It counts toward your RMD but isn't included in your taxable income. There's an annual limit, adjusted for inflation, so check irs.gov for the current figure. QCDs are not available from the TSP, so you'd need the money in an IRA first.

Keep an eye on withholding

You can have federal tax withheld from RMDs, and the TSP will let you set that. If you'd rather skip quarterly estimated payments, withholding is a clean fix, since withholding is treated as paid evenly through the year.

A few other points worth knowing

RMDs can't be rolled over. The required amount has to leave the tax-deferred system, though you can reinvest it in a regular brokerage account afterward.

If you inherit a TSP or IRA, different rules apply. Most non-spouse beneficiaries must empty the account within 10 years, and in some cases annual distributions are required along the way. A surviving spouse usually has more options, including treating the account as their own. Beneficiary rules are intricate enough to deserve their own review.

Also, check your TSP beneficiary designations and your IRA ones at the same time. Outdated forms cause more family heartache than any tax rule.

What to do now

If you're within about 10 years of RMD age, run a projection. Add up your traditional balances, estimate growth, and look at what your first few RMDs might be on top of Social Security and any FERS pension. Many people are surprised to find they're not in a lower bracket in retirement at all.

If you're already past RMD age, confirm that every account is covered: the TSP's automatic distribution, each IRA, and any old 401(k) you left behind with a former employer. Those forgotten accounts are the ones that bring penalties.

Exact tables, ages, and limits get adjusted by law and by the IRS, so verify them at tsp.gov and irs.gov, and consider a session with a tax professional who works with federal retirees. An hour of planning now can save Frank's kind of April surprise.