Whether you owe state taxes on TSP withdrawals depends entirely on where you live when you take the money. Nine states tax no income at all, a small group fully exempts TSP distributions, roughly 20 offer age- or income-based partial exclusions, and the rest tax traditional TSP withdrawals as ordinary income. The trap that catches many federal retirees: a state can exempt your FERS or CSRS annuity in full and still tax every dollar you pull from your TSP.
The Nine States That Tax Nothing
If you live in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming, no state income tax applies to any TSP withdrawal — traditional or Roth, lump sum or installment. New Hampshire joined this group when it repealed its interest and dividends tax effective in 2025. After federal tax, the entire distribution is yours.
How the Taxing States Treat Traditional TSP
In most of the remaining 41 states and the District of Columbia, a traditional TSP distribution is ordinary taxable income. These states start with your federal adjusted gross income, which already includes the withdrawal, and apply their own brackets and deductions. The TSP reports every distribution to your state of residence, so your state revenue department sees the amount whether or not any tax was withheld.1The Thrift Savings Plan (TSP). Taking Money From Your Account
Why a Pension Exemption May Not Cover Your TSP
A FERS or CSRS annuity is a defined-benefit pension. Your TSP is a defined-contribution plan, the federal equivalent of a 401(k).2U.S. Office of Personnel Management. Thrift Savings Plan Several states draw a sharp line between the two.
Alabama exempts defined-benefit pension income but partially taxes distributions from 401(k)-type accounts, including the TSP. Hawaii explicitly treats TSP distributions like 401(k) distributions and taxes them, while exempting employer-funded pension payments. New York exempts federal civil service pensions in full but applies a separate exclusion, capped at $20,000 for those 59½ and older, to TSP and other retirement account income.
Before assuming your state’s “federal retirement” exemption covers your TSP, confirm whether the language reaches defined-contribution plans or stops at annuity-style pensions. Your state department of revenue will spell out which types of retirement income qualify.
States That Fully Exempt TSP Distributions
A handful of states with an income tax still exempt TSP withdrawals in full, though the conditions differ:
- Illinois exempts income from most qualified retirement plans, including government plans, 401(k)s, IRAs, and the TSP.
- Mississippi exempts qualified retirement income from federal, state, and private retirement systems, including the TSP.
- Pennsylvania exempts TSP and 401(k) distributions, but only for retirees who are 59½ or older. Withdraw earlier and the distribution is taxable.
- Michigan fully exempts qualifying pension and retirement income for all birth years beginning in 2026, completing a four-year phase-in that restored pre-2012 benefits.
Kansas, Louisiana, and Massachusetts exempt federal pension annuities, but whether that reaches TSP depends on how each state classifies defined-contribution plan income. Verify the reach of the exemption before you rely on it.
States With Partial Exemptions
Roughly 20 states offer partial relief through age-based dollar exclusions or income-based phase-outs. Two examples show how the mechanics work:
- Georgia lets retirees aged 62 to 64 exclude up to $35,000 of retirement income, including TSP. At 65 and older, the exclusion rises to $65,000.
- Colorado allows taxpayers aged 55 to 64 to subtract up to $20,000 of pension and annuity income; the subtraction rises to $24,000 at 65 and older.3Department of Revenue – Taxation. Income Tax Topics: Social Security, Pensions and Annuities
Others use income thresholds. Virginia reduces its retirement deduction once adjusted gross income exceeds $50,000 for single filers or $75,000 for joint filers. These exclusion amounts frequently change during legislative sessions, so check the current year’s instructions.
Roth TSP
Roth TSP contributions are made with after-tax dollars, so a qualified distribution is tax-free at both the federal and state level. A distribution qualifies if your first Roth contribution was at least five years ago and you are at least 59½, disabled, or deceased.4Internal Revenue Service. Retirement Topics – Designated Roth Account Most states follow the federal treatment.
If the distribution is not qualified — say, you break the five-year rule — the earnings portion is taxed as ordinary income federally and in most states. Your original contributions are never taxed again.
Starting with the 2024 tax year, Roth TSP balances are no longer subject to required minimum distributions during your lifetime. Only the traditional balance factors into your RMD.5The Thrift Savings Plan (TSP). SECURE 2.0 and the TSP
Required Minimum Distributions
Once you reach age 73, you must begin taking RMDs from your traditional TSP balance each year. Under the SECURE 2.0 Act, the RMD age rises to 75 starting January 1, 2033.5The Thrift Savings Plan (TSP). SECURE 2.0 and the TSP Every RMD is taxable federal income, and most taxing states treat it the same way. Leaving money in the traditional TSP does not avoid state tax indefinitely.
In a state with a partial exclusion, an RMD can use up the full exemption on its own. A Colorado retiree taking a $24,000 RMD has already consumed the entire subtraction for the year, so any additional TSP withdrawal is fully taxable. Timing your withdrawals around these thresholds can lower your bill.
The TSP Does Not Withhold State Taxes
The TSP withholds federal tax from distributions but does not withhold anything for state or local taxes.1The Thrift Savings Plan (TSP). Taking Money From Your Account Retirees see federal withholding on the 1099-R and assume the state piece is handled too, then face a large balance due plus penalties at filing time.
If your state taxes TSP income, plan on paying quarterly estimated tax directly to your state department of revenue. Most states use the same quarterly schedule as the IRS: April 15, June 16, September 15, and January 15 of the following year. Federal estimated payments are required if you expect to owe $1,000 or more after withholding and credits.6Internal Revenue Service. Form 1040-ES Estimated Tax for Individuals State thresholds are similar but vary. Missed quarterly payments trigger underpayment penalties and interest.
Moving to a Lower-Tax State
If you move mid-year, you generally file part-year returns in both states, and each state taxes the income you received while a resident there. The date of the distribution controls, not the filing date. A withdrawal taken in March while you live in Virginia is taxable in Virginia even if you move to Florida in June.
Two residency concepts can both apply. Domicile is your permanent home. Statutory residency is based on physical presence, often 183 days, and can pull you into a second state’s tax net even when your domicile is elsewhere. Someone who splits time between two states can owe tax in both.
If part of the reason for moving is to cut state tax on a large TSP withdrawal, take the distribution after residency in the new state is established. Pulling the money before the move can leave the entire amount taxable in the old state.
A Note for Military Retirees
More than 35 states now fully exempt military retired pay, either because they have no income tax or because they exclude it by statute. That exemption is not the same as an exemption for your TSP. Military retired pay is a pension based on years of service; your TSP is a separate defined-contribution account. In a state that exempts retired pay but taxes 401(k)-style distributions, your TSP withdrawals remain taxable.