Under IRS regulations, when you reach a certain age, you must begin taking a required minimum distribution from your Thrift Savings Plan account or other retirement savings accounts each year. You generally have to start taking such withdrawals when you reach age 70½, unless you’re still working.
This week, we’ll take a look inside the world of RMDs. But be warned: the tax rules regarding such distributions are complex. You may want consult a financial adviser before making any decisions based on what you read today.
The required minimum distribution for any year is the account balance as of the end of the immediately preceding calendar year divided by a distribution period from the IRS’s Uniform Lifetime Table. This table can be found on page 8 of the TSP pamphlet titled, Important Tax Information About Your TSP Withdrawal and Required Minimum Distributions. One of the differences of computing RMD’s outside of the TSP is that a separate table is used if the sole beneficiary is the owner’s spouse who is 10 or more years younger than the owner. The TSP does not distinguish between married or unmarried participants for RMD computations.
Here’s how the distribution requirements work:
Suppose you’re retired and your 70th birthday was June 30, 2018. You reached age 70½ on Dec. 30, 2018. You must take your first RMD (for 2018) by April 1, 2019. If your 70th birthday was July 1, 2018, you reached age 70½ on Jan. 1, 2019. You do not have an RMD for 2018. You must take your first RMD (for 2019) by April 1, 2020.
For each subsequent year after your required beginning date, you must withdraw your RMD by Dec. 31.
The first year following the year you reach age 70½ you will generally have two required distribution dates: an April 1 withdrawal (for the year you turn 70½), and an additional withdrawal by December 31 (for the year following the year you turn 70½). To avoid having both of these amounts included in your income for the same year, you can make your first withdrawal by December 31 of the year you turn 70½ instead of waiting until April 1 of the following year.
RMD rules after an account owner dies are different from the rules for living participants. The TSP has a publication on RMDs for beneficiary participants that explains how these differences apply to a beneficiary of a TSP account.
Note that in general, Roth IRAs do not require withdrawals until after the death of the owner. This does not hold true, however, for the TSP. If you have invested in the Roth TSP, your entire account is subject to RMD, including your Roth balance.
Also be aware that if you receive a payment from an account that has both taxable and tax-exempt contributions, your distribution will be paid proportionally from taxable and nontaxable amounts. For example, if 80 percent of your account is in your traditional balance and 20 percent is in Roth, any withdrawal you take will be 80 percent traditional and 20 percent Roth. The good news is that under new withdrawal rules that will take effect later this year, you can still use this method, but you’ll also have the option to take your withdrawal only from your Roth balance or only from your traditional balance.
Here are a couple of other things to remember about RMDs:
- You can withdraw more than the minimum required amount.
- Your withdrawals will be included in your taxable income, except for any part that was taxed before or that can be received tax-free (such as qualified distributions from designated Roth accounts).