Your TSP Might Look Healthy Now—But These Recent Rule Changes Could Affect Withdrawals in Retirement

Key Takeaways

• Several recent rule updates have changed how and when you can withdraw from your Thrift Savings Plan (TSP) in retirement, including how required minimum distributions (RMDs) are calculated and what withdrawal options you now have.

• Failure to understand these updates could result in unexpected taxes, penalties, or poor income planning, especially if you’re relying on the TSP as your primary retirement income source.

Why Your TSP Strategy Needs a Fresh Look in 2025

If you’re approaching retirement from a government job, your Thrift Savings Plan probably represents one of your largest financial assets. After years of disciplined contributions and growth, it may seem like you’re in a secure position. But how you withdraw from your TSP matters just as much as how you saved, especially after recent rule changes.

In 2025, the TSP rules for withdrawals, required minimum distributions, and catch-up contributions reflect both legislative updates and internal system changes that can catch retirees off guard if they’re not prepared.

Age Milestones Affecting Withdrawals

The age at which you retire and begin tapping your TSP significantly impacts your options and tax exposure. Here’s what the 2025 landscape looks like:

1. Age 55 Rule Still Applies

If you separate from service during or after the year you turn 55 (or 50 for certain law enforcement, air traffic controllers, and firefighters), you can begin penalty-free withdrawals from your TSP without waiting until age 59½. This rule remains in effect in 2025.

However, if you roll over your TSP into an IRA, that early access flexibility disappears, and the 10% early withdrawal penalty applies unless another exemption is met.

2. Required Minimum Distributions Start at Age 73

Following the SECURE Act 2.0 changes, the age for RMDs increased to 73 starting in 2023. This still applies in 2025. If you turn 73 this year, you must take your first RMD by April 1 of the following year (2026). Subsequent RMDs must be taken annually by December 31.

Failing to take your RMD on time triggers a steep penalty: 25% of the amount you should have withdrawn, reduced to 10% if corrected within two years.

TSP Withdrawal Flexibility Has Changed

Since 2019, the TSP Modernization Act has given retirees greater flexibility in how they withdraw their funds. These rules remain in effect in 2025 and include:

• The ability to take multiple partial withdrawals

• Flexibility to choose monthly, quarterly, or annual payments

• Option to stop or change installment payments once per calendar year

While these changes are designed to give you more control, they also create more room for missteps if not carefully coordinated with tax planning and income needs.

Secure Act 2.0 Catch-Up Contribution Shift

Beginning in 2025, new rules from the SECURE Act 2.0 apply to high-income TSP participants aged 60 to 63. While the catch-up contribution limit has increased to $11,250 for this age group, participants who earned more than $145,000 in the previous year must now make these catch-up contributions as Roth (after-tax) contributions.

This shift has two major implications:

• It could increase your current tax liability since Roth contributions are not deductible.

• Your retirement withdrawals may become more tax-efficient later, as Roth withdrawals are generally tax-free.

It’s essential to determine whether Roth-style catch-up contributions work in your broader retirement tax strategy.

Required Minimum Distribution Coordination Gets More Complex

One new complication for 2025 retirees is how RMDs interact with multiple retirement accounts. If you have both a traditional TSP and other tax-deferred accounts like IRAs or 401(k)s, each account must meet its own RMD unless consolidated. Unlike IRAs, RMDs from the TSP cannot be aggregated or satisfied using distributions from other plans.

You must calculate and withdraw the required amount separately from the TSP. The TSP provides an automatic RMD calculation and distribution option, but it’s your responsibility to ensure accuracy and coordination.

Roth TSP and RMDs: New Relief in 2024 Now in Effect

As of 2024, Roth balances in the TSP are no longer subject to RMDs if they remain in the TSP. This aligns with changes to Roth 401(k) accounts under SECURE Act 2.0.

This means that if you keep your Roth TSP in the plan, you won’t be forced to take withdrawals starting at age 73. However, if you roll your Roth TSP to a Roth IRA, that relief continues, but you must ensure the five-year holding period is met to avoid tax consequences on earnings.

Combining TSP With Other Retirement Income

If your retirement income includes a FERS or CSRS annuity, Social Security, and TSP withdrawals, it’s crucial to time and structure each component wisely. In 2025, some retirees may find that:

• Large TSP withdrawals can push Social Security benefits into a higher tax bracket

• Installment payments from the TSP might not align with monthly income needs

• Annuity choices at TSP withdrawal may limit future flexibility

The TSP offers annuity options through its withdrawal process, but once you elect an annuity, the choice is irrevocable. Many retirees now prefer a combination of partial withdrawals and installment payments to maintain flexibility.

Spousal and Beneficiary Considerations

Recent updates have made spousal access to TSP accounts more streamlined, but there are still key differences in how spouses and non-spouses can inherit TSP funds. In 2025:

• Spouses can transfer inherited TSP balances into their own TSP or IRA and delay RMDs until age 73.

• Non-spouse beneficiaries generally must withdraw the entire inherited TSP within 10 years (SECURE Act rule), unless they qualify as an eligible designated beneficiary.

TSP also now allows beneficiaries to take installment payments rather than only a lump sum, offering more planning flexibility. Still, proper beneficiary designations are crucial to avoid delays and tax inefficiencies.

Tax Implications and Planning Risks

One overlooked aspect of the 2025 TSP rule landscape is how tax planning needs to evolve. Even with Roth options and more flexible withdrawal choices, risks remain:

• Uncoordinated withdrawals can trigger higher Medicare Part B premiums through the IRMAA surcharge

• Required withdrawals could unintentionally push you into a higher federal tax bracket

• Overlooking the Roth five-year rule can result in taxable earnings even if your contribution is tax-free

Planning tax-efficient withdrawal sequences can preserve your retirement income over time and avoid costly surprises.

Digital Access and Security Updates in 2025

TSP’s digital system has continued to evolve. As of mid-2025:

• TSP retirement applications and withdrawal requests can now be submitted entirely online

• Processing time remains 60 to 90 days for full retirement application approvals

• Enhanced security measures, including two-factor authentication and account lockout protocols, are standard

Make sure you have verified your contact details and enabled secure login access well before your retirement filing to avoid delays.

What You Should Be Doing Right Now

If retirement is near, don’t assume your TSP will take care of itself. By 2025, the complexity of TSP withdrawals has grown, and failure to plan properly can shrink the value of what you’ve spent decades building.

• Review your TSP withdrawal strategy annually

• Calculate projected RMDs and understand their tax impact

• Coordinate your TSP with your Social Security and pension income

• Review beneficiary elections

• Decide how Roth contributions or conversions fit into your plan

If you’re unsure about the tax or timing implications, this is the time to seek help from a licensed professional.

Secure Your Retirement Income Strategy Before Rules Get More Complicated

TSP withdrawal rules in 2025 offer flexibility, but also add complexity. The evolving age thresholds, changing catch-up contribution rules, and RMD coordination requirements mean you need more than just a “set it and forget it” approach. Understanding the tax interactions, digital tools, and withdrawal sequencing is critical to maintaining your financial security throughout retirement.

Reach out to a licensed professional listed on this website for help building a tax-efficient, sustainable TSP withdrawal strategy that fits your goals.