How TSP Withdrawals Are Taxed in Retirement
How withdrawals from the Thrift Savings Plan can affect taxes, Medicare costs, retirement income, and the role other retirement resources play over time.
How TSP Withdrawals Are Taxed in Retirement
The tax question is not what rate you pay this year. It is how withdrawals interact with Social Security, Medicare premiums, and bracket management across decades.
Most federal employees approaching retirement know their TSP withdrawals will be taxed. Fewer understand how those withdrawals interact with Social Security taxation, Medicare premium surcharges, and their overall income structure year after year.
The tax rate on any single withdrawal is the least important part of the question. What matters more is the sequence: which accounts you draw from first, how much you take each year, and how those decisions compound forward across a retirement that may last 25 to 30 years.
This article explains how TSP withdrawals are taxed, how they interact with other retirement income sources, and why the order of withdrawals often matters more than the amount.
Traditional TSP vs. Roth TSP: The Core Tax Difference
The TSP has two separate buckets, and they are taxed in fundamentally different ways.
Most federal employees who have been contributing for many years carry the majority of their balance in the traditional TSP. Agency matching contributions always go into the traditional side regardless of your own contribution elections. That means most federal retirees are drawing primarily from a fully taxable account, which makes sequencing decisions especially consequential.
How TSP Withdrawals Affect Social Security Taxation
This is the interaction that surprises most federal retirees. Social Security benefits are not automatically fully taxable, but they become increasingly taxable as other income rises. And TSP withdrawals directly affect that calculation.
The IRS uses a figure called provisional income, sometimes called combined income, to determine how much of your Social Security benefit is subject to federal tax. Provisional income is calculated as your adjusted gross income, plus any tax-exempt interest, plus 50% of your annual Social Security benefit.
For a federal retiree receiving a FERS pension of $30,000 per year and Social Security of $24,000 per year, the provisional income calculation before any TSP withdrawal is already approximately $42,000 ($30,000 pension + $12,000, which is 50% of Social Security). That is above the $34,000 threshold for single filers, meaning 85% of the Social Security benefit is already subject to tax before a dollar of TSP is withdrawn.
Traditional TSP withdrawals count fully toward provisional income. Qualified Roth TSP withdrawals do not. This is one of the most concrete planning advantages of building a Roth TSP balance during the working years, particularly for those who have time to do so before retirement.
How TSP Withdrawals Trigger Medicare Premium Surcharges
IRMAA, the Income-Related Monthly Adjustment Amount, is a Medicare premium surcharge that applies when Modified Adjusted Gross Income exceeds certain thresholds. In 2026, IRMAA begins at $109,000 for single filers and $218,000 for married couples filing jointly.
For federal retirees with meaningful TSP balances, large withdrawals in any single year can push MAGI above an IRMAA threshold and trigger higher Medicare Part B and Part D premiums. In 2026, the standard Part B premium is $202.90 per month. Crossing the first IRMAA threshold adds $81.20 per person per month, or just under $1,000 per year per person.
IRMAA is not based on your current year's income. It is based on your Modified Adjusted Gross Income from two years prior. Your 2026 Medicare premiums are determined by your 2024 tax return. A large TSP withdrawal taken in 2026 will not affect 2026 Medicare premiums, but it will affect 2028 premiums. This two-year lag makes advance planning significantly more valuable than reactive adjustments, and it means income decisions made in the years just before Medicare eligibility deserve particular attention.
The IRMAA brackets function as a cliff, not a gradual ramp. Exceeding a threshold by a single dollar triggers the full surcharge for that tier. A married couple whose MAGI lands at $218,001 pays the same IRMAA surcharge as a couple earning $250,000. This makes income management in the years around Medicare enrollment unusually precise.
Traditional TSP withdrawals increase MAGI and count fully toward IRMAA thresholds. Qualified Roth TSP withdrawals do not. This is another concrete reason why managing the balance between traditional and Roth TSP during the years before Medicare enrollment matters.
Why the Sequence of Withdrawals Matters More Than the Tax Rate
The tax rate on a single TSP withdrawal tells you very little about whether that withdrawal is well-timed. What matters more is how that withdrawal fits into the full income picture for the year, and how it shapes the income picture for subsequent years.
Federal retirees typically have several income sources that activate at different ages: the FERS pension from retirement, the FERS Supplement from retirement to age 62, Social Security from 62 to 70, and Required Minimum Distributions beginning at age 73 or 75 depending on birth year. TSP withdrawals interact with all of them.
The Roth Conversion Window
Beginning in January 2026, federal employees and retirees can convert traditional TSP balances to Roth TSP directly within the account, without needing to roll funds out to an IRA first. This is a significant change that makes in-plan Roth conversion accessible for the first time to TSP account holders.
A Roth conversion moves money from the traditional TSP to the Roth TSP. The converted amount is added to taxable income in the year of conversion and taxed as ordinary income. Future growth and qualified withdrawals from the Roth side are then tax-free.
The tradeoff is straightforward: conversions create taxable income in the year they are taken. The question is whether paying tax now, in a lower bracket, is preferable to paying tax later when Social Security is stacking, RMDs have begun, and brackets may be narrower.
For many federal retirees, the answer is yes, but the amount and timing of conversions should be calculated carefully against IRMAA thresholds, Social Security provisional income, and the marginal bracket in each year. Converting too much in a single year can trigger IRMAA surcharges two years later, offsetting part of the benefit.
One Additional Deduction Worth Knowing
The 2025 federal tax law created an additional $6,000 federal income tax deduction for each taxpayer age 65 or older, available from 2025 through 2028. It phases out beginning at $75,000 MAGI for single filers and $150,000 for joint filers. This deduction is in addition to the standard deduction and the existing age-65 extra deduction.
For federal retirees in that income range, this provides additional room to take TSP withdrawals or Roth conversions in 2025 through 2028 at lower effective rates. It is a time-limited window worth factoring into near-term withdrawal planning.
The Wealthspan Perspective
From a Wealthspan perspective, the goal of TSP withdrawal planning is not to minimize taxes in any single year. It is to minimize the total tax burden across the full arc of retirement while preserving flexibility as income sources change, life circumstances shift, and tax law evolves.
For federal employees, this means understanding that the TSP does not operate independently. Every withdrawal interacts with the FERS pension, the FERS Supplement, Social Security timing, IRMAA thresholds, and eventual RMD obligations. The question is never just what you take. It is always how what you take affects everything else that follows.
Tax figures in this article reflect current law and IRS guidance as of 2026. Social Security provisional income thresholds ($25,000/$34,000 single; $32,000/$44,000 joint) are set by statute and have not been inflation-adjusted since 1983 and 1993. IRMAA thresholds ($109,000 single; $218,000 joint in 2026) are adjusted annually by CMS. The standard Medicare Part B premium is $202.90 per month in 2026. The $6,000 additional deduction for taxpayers age 65 and older applies for tax years 2025 through 2028 under current law and phases out at $75,000 MAGI (single) and $150,000 (joint). RMD ages reflect SECURE 2.0: age 73 for those born 1951 through 1959, and age 75 for those born 1960 or later.
Tax law changes frequently. The figures in this article may not reflect changes enacted after publication. Readers should verify current thresholds with the IRS, SSA, and CMS before making withdrawal or conversion decisions. We encourage readers to consult the IRS website at irs.gov and official TSP guidance at tsp.gov directly.
This content is for educational purposes only. It does not constitute personalized financial, tax, or legal advice and should not be relied upon as such. Longevity Wealth Strategies and its representatives do not render tax or legal advice. Mark Sweeney is a Financial Planner with, and offers securities and investment advisory services through, LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA and SIPC, and an affiliate of LPL Financial. LPLE and LPL Financial are not affiliated with Longevity Wealth Strategies. Please consult a qualified tax professional before making TSP withdrawal or conversion decisions.
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