Whether you pay state taxes on TSP withdrawals depends on the state you live in when the money is paid out. Nine states levy no personal income tax, so residents there owe nothing on a Thrift Savings Plan distribution. Most other states tax traditional TSP withdrawals as ordinary income, though many now exempt some or all federal civilian and military retirement pay. Qualified Roth TSP distributions are generally free of state tax. And one detail surprises a lot of retirees: the TSP does not withhold state tax from your payments, so paying your state is on you.
How States Treat TSP Withdrawals
State approaches fall into roughly three groups.
The first group charges no personal income tax at all. Nine states currently sit here, and TSP withdrawals for residents are automatically free of state tax.
The second group taxes income but exempts some or all federal retirement pay. The scope varies. Some states exempt all government pension income. Others cap the exclusion at a fixed dollar amount or phase it out above income thresholds. Military retirement has gotten especially favorable treatment lately: roughly 39 states now fully exempt it, either through a blanket no-income-tax policy or a targeted military pension exclusion.
The third group taxes TSP withdrawals the same as wages. Top state rates run from under 3 percent to over 13 percent, so on the same withdrawal, the swing between a tax-friendly state and a high-tax state can reach thousands of dollars a year.
Federal law puts one hard limit on all of this. Under 4 U.S.C. § 114, no state may tax the retirement income of someone who is not a resident of that state.1Office of the Law Revision Counsel. 4 U.S. Code 114 – Limitation on State Income Taxation of Certain Pension Income TSP distributions are protected under that statute because the TSP is a governmental plan under Internal Revenue Code section 414(d).2Office of the Law Revision Counsel. 4 U.S. Code 114 – Limitation on State Income Taxation of Certain Pension Income A state you used to live in cannot reach across the border and tax the TSP balance you built while you lived there.
Traditional vs. Roth Balances
What’s taxable at the state level depends on which side of your TSP account the withdrawal comes from.
Traditional TSP contributions were made with pre-tax dollars, and the earnings have never been taxed. Every dollar of a traditional withdrawal counts as ordinary income for federal and state purposes.3The Thrift Savings Plan (TSP). Traditional and Roth TSP Contributions If your state taxes retirement income, this is the money that generates the bill.
Roth TSP contributions were taxed before they went in. Qualified Roth distributions are tax-free at both the federal and state level, and the earnings come out untaxed too, as long as the Roth balance has been open for at least five years and you are at least 59½.3The Thrift Savings Plan (TSP). Traditional and Roth TSP Contributions Most states follow the federal definition of a qualified distribution. If your Roth withdrawal doesn’t meet those conditions, the earnings portion is generally taxable at the state level.
Retirees who split contributions between traditional and Roth need to know which balance each withdrawal comes from. The TSP shows this on your year-end Form 1099-R, but keeping your own records makes state filing easier.
Your State of Residence Controls the Tax
The state that taxes your withdrawal is the one where you legally reside on the date the payment is made. It doesn’t matter where you were stationed, which state you lived in while contributing, or where your former agency was headquartered. Federal law under 4 U.S.C. § 114 blocks any other state from taxing that income.1Office of the Law Revision Counsel. 4 U.S. Code 114 – Limitation on State Income Taxation of Certain Pension Income
This is why relocating before taking withdrawals can wipe out your state tax obligation entirely. Plenty of federal retirees do it. But establishing a new domicile takes more than a mailing address. State revenue departments look at voter registration, driver’s license, where your primary home actually is, and where you spend most of your time. Keeping strong ties to a high-tax state while claiming residency in a no-tax state is a fast way to draw a residency audit.
Moving Mid-Year
If you change states during the year, each TSP payment is taxed by the state where you lived on the day it was issued. A distribution taken in March, while you’re still a resident of a taxing state, is subject to that state’s tax even if you move to a no-tax state in April. Most taxing states require a part-year return covering the months you lived there, and your new state may require one too. Timing a large withdrawal around a move can meaningfully change your total bill.
The TSP Does Not Withhold State Tax
This is where TSP participants get tripped up. Unlike some private-sector 401(k) providers, the TSP does not withhold state or local income tax from any distribution or withdrawal.4The Thrift Savings Plan (TSP). Taking Money From Your Account – Section: Withholding Taxes It handles federal withholding, and it reports your payments to your state of residence if that state has an income tax, but it sends nothing to the state on your behalf.5Thrift Savings Plan. Changes to Tax Rules About TSP Payments
That leaves two ways to pay. You can make quarterly estimated tax payments to your state; most states with an income tax provide a voucher or online portal for this. Or you can wait and pay when you file your annual state return, though that risks underpayment penalties if your state requires estimated installments once the tax owed passes a threshold.
After each year, the TSP issues Form 1099-R showing your total distributions, the taxable amount, and any federal tax withheld.4The Thrift Savings Plan (TSP). Taking Money From Your Account – Section: Withholding Taxes The state withholding box will be blank. You use the 1099-R to complete your state return and calculate what you owe.
A Note on Rollovers
Rolling a traditional TSP balance directly to a traditional IRA or eligible employer plan is not a taxable event, and no state tax applies. Converting traditional TSP dollars to a Roth IRA is different: the converted amount counts as taxable income in the year of the conversion, and if your state taxes retirement income, that amount lands on your state return.5Thrift Savings Plan. Changes to Tax Rules About TSP Payments The TSP withholds no tax on the conversion, so an estimated payment to the state may be needed to avoid an underpayment penalty. Rolling Roth TSP to a Roth IRA is tax-free on both sides.
Required Minimum Distributions
Once you reach age 73, the IRS requires annual minimum withdrawals from your traditional TSP. If you’re still working for the federal government, you can delay TSP RMDs until the year you actually retire; after you separate, the clock starts. The first RMD is due by April 1 of the year after you turn 73, and each following RMD is due by December 31.6Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
For state tax purposes, an RMD is treated like any other traditional TSP withdrawal. If your state taxes retirement income, it’s taxable. If your state exempts it or has no income tax, it passes through untaxed. Watch one trap: delaying your first RMD to the April 1 deadline means taking two RMDs in the same calendar year (the delayed first one and the regular second one), which can push you into a higher bracket in states with graduated rates.
Roth TSP balances are also subject to RMD rules while they sit in the TSP, which is not the case for Roth IRAs. Rolling your Roth TSP to a Roth IRA before RMDs begin removes the requirement.
Planning Around State Taxes
The biggest lever is where you live. Because federal law ties TSP taxation to your state of residence at the time of withdrawal, choosing your retirement location with tax treatment in mind is the single most effective move. A federal retiree taking $50,000 a year in traditional TSP distributions could face anywhere from zero state tax to more than $5,000 a year depending on the state.
The mix between traditional and Roth also matters. If you’re still contributing, the 2026 elective deferral limit is $24,500, with an additional $8,000 catch-up if you’re 50 or older and $11,250 if you’re between 60 and 63.7Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026; IRA Limit Increases to $7,500 Sending part of that to the Roth side builds a pool that will come out state-tax-free later, which matters most if you expect to retire in a state that taxes ordinary income.
Keep records of contribution types and withdrawals. The TSP tracks traditional and Roth balances separately and reports them on Form 1099-R, but checking those numbers against your own records keeps you from paying state tax on money that was already taxed on the way in.