How TSP withdrawals are taxed

There's no single tax rate on a TSP withdrawal. Money from your traditional balance is taxed as ordinary income at your own federal rate in the year you take it out. Roth contributions come out tax-free, and Roth earnings are tax-free once the withdrawal is qualified. What the TSP withholds up front is a separate thing: usually 20% for a single withdrawal or installments expected to last less than 10 years, and 10% for financial hardship withdrawals and required minimum distributions. Before age 59½, a 10% early-withdrawal penalty may also apply to the taxable part unless you qualify for an exception.

Withholding by type of payment

The TSP withholds federal income tax from the taxable part of most payments. The rate depends on what kind of payment it is:

Withholding isn't your final tax bill. It's a prepayment. When you file, the withdrawal is added to your income for the year, and you'll owe more or get some back depending on your bracket.

State tax: the TSP doesn't withhold state or local income tax. It reports every payment to your state of residence at the time of the payment (if that state has an income tax), so you may owe state tax on it.

What's taxable and what isn't

• Traditional balance: taxable as income when withdrawn.
• Traditional contributions from tax-exempt combat-zone pay: not taxed when withdrawn, but their earnings are.
• Roth contributions: never taxed again when withdrawn.
• Roth earnings: tax-free only if the payment is qualified. That means 5 years have passed since January 1 of the year of your first Roth TSP contribution and you're 59½, have a permanent disability, or have died. Otherwise the earnings are taxed as income.

In the TSP's own example, a withdrawal from an account that's 60% traditional, 15% Roth contributions and 25% Roth earnings is split in the same proportions: on a $1,000 withdrawal before 59½, $850 is taxable and only the $150 of Roth contributions is not. Tax-exempt combat-zone money also comes out in proportion to its share of your traditional balance.

The 10% early-withdrawal penalty

If you take money out before 59½, the IRS may add a 10% penalty on the taxable part that you don't roll over. Exceptions include:

• Payments after you leave service in or after the year you turn 55 (50 for public-safety employees, or with 25 years of service under the TSP)
• Payments because of total and permanent disability, or death
• Annuity payments, or substantially equal payments over your life expectancy
• Up to $5,000 within one year of a birth or adoption
• Up to $1,000 a year for emergency personal expenses
• Payments in a year your deductible medical expenses are more than 7.5% of your adjusted gross income
• Payments ordered by a domestic relations court

The TSP tax booklet lists a few more, including payments after domestic abuse, terminal illness and qualified disasters.

For service members: the penalty never applies to the part of a withdrawal that comes from tax-exempt combat-zone contributions. Reservists called to duty for more than 179 days may also qualify for relief from the penalty. Talk to a tax advisor or legal assistance office first.

Example: a $10,000 withdrawal you want to roll over

Say you take a $10,000 single withdrawal from your traditional balance, paid to you, and you plan to roll it into an IRA. The TSP withholds 20%, sends $2,000 to the IRS, and pays you $8,000. To roll over the full $10,000 within 60 days, you'd have to add $2,000 from savings. Whatever you don't roll over is taxed, and may get the 10% penalty if you're under 59½.

Asking the TSP to transfer the money directly to the IRA or other plan avoids the withholding entirely.

Common questions

What is the tax rate on a TSP withdrawal?

There's no flat rate. Traditional TSP withdrawals are taxed as ordinary income at your federal rate for that year. The TSP withholds 20% from single withdrawals and from installments lasting under 10 years, and 10% from hardship withdrawals and RMDs. The real tax is settled when you file.

Does the TSP withhold state tax?

No. The TSP doesn't withhold state or local income tax, but it reports each payment to your state of residence, so you may owe state tax on the withdrawal.

Can I have less than 20% withheld?

Not on single withdrawals, age 59½ in-service withdrawals, or installments expected to last under 10 years. You can ask for more, but not less. You can choose a different rate, including 0%, for hardship withdrawals, RMDs, and installments of 10 years or more.

Is a Roth TSP withdrawal taxed?

Your Roth contributions are never taxed again. Roth earnings are tax-free if the payment is qualified: 5 years since January 1 of the year of your first Roth contribution, and age 59½, disability or death. Otherwise the earnings are taxed and may get the 10% penalty.

Do I pay the 10% penalty if I retire at 55?

Generally no. If you leave service in or after the calendar year you turn 55 (50 for public-safety employees), withdrawals from the TSP aren't subject to the 10% early-withdrawal penalty, even before 59½. Regular income tax still applies to traditional money.

Is combat-zone money taxed when I withdraw it?

Traditional contributions from tax-exempt combat-zone pay aren't taxed when withdrawn, but the earnings on them are. In the Roth balance, tax-exempt contributions are never taxed, and their earnings are tax-free once the payment is qualified.

Related guides

• TSP withdrawal rules by age, and how long a withdrawal takes
• Roth vs traditional TSP: how each is taxed
• TSP contribution limits 2026

Sources

• TSP: Tax Rules about TSP Payments (tspbk26), including the "Tax Treatment for TSP Payments" table
• TSP: Taking money from your account
• IRS Publication 721: Tax Guide to U.S. Civil Service Retirement Benefits

Educational information, not tax advice. Tax rules have exceptions; check tsp.gov or a tax professional before you take a withdrawal.