Where Does Your TSP Withdrawal Come From?


When you are making investment decisions related to your Thrift Savings Plan (TSP) contributions, one of the things that you should keep in mind is that your withdrawals are proportional to the breakup of your investments in the different funds.

When you make a TSP withdrawal, you cannot pick and choose which fund or type of investment the money will come out of. Withdrawals extract sums from each of your investments in the same proportion in which you have spread your contributions among the various funds.

So if you chose to invest 20% of your contributions into each of the five core funds (G, F, C, S and I), and you are now withdrawing $10,000, then it will be made up of $2,000 from each of the funds.

 Traditional vs. Roth TSP Withdrawals

The same principle applies when you have split your contributions into traditional and Roth TSP investments. If you invested 90% into traditional and 10% into Roth, your withdrawal will be comprised of the same 90-10 ratio from your traditional and Roth investments.

Note that the tax treatment on your withdrawal will also be affected by your choice of investments. Your Roth contributions are already taxed while traditional contributions are tax-deferred. So the Roth TSP part of your withdrawal will not be subject to taxes, while you still need to pay state and federal income taxes on the traditional part of any distribution you take from the account.

So, in summary, when you are making investment decisions in your TSP account, think ahead a bit to when you are about to retire or already retired, and ready to withdraw funds from the account. Where would you like the distribution to come from at that time? Factor that in when you choose your TSP Fund(s) and the type.

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