Do You Report TSP on Taxes? Withdrawals, Rollovers, and RMDs

Yes, you report TSP activity on your taxes, but only when you take money out. Traditional and Roth TSP contributions are already accounted for on your W-2, so you don’t list them separately on your Form 1040. Any distribution, loan default, or rollover generates a Form 1099-R from the TSP, and that is the form you use to report the withdrawal on your federal return.

Why You Don’t Report TSP Contributions Separately

Your agency or service branch handles contribution reporting through your Form W-2. There is no line on your tax return where you enter what you put into the TSP during the year; the W-2 already reflects it.

Traditional (pre-tax) contributions come out of your paycheck before federal income tax is calculated. Box 1 of your W-2, which shows taxable wages, is already reduced by the amount you contributed. The contribution is itemized separately in Box 12 under Code D, which identifies elective deferrals to a 401(k)-type plan.¹ Your adjusted gross income on Form 1040 is lower because those dollars never appeared in Box 1 in the first place.

Roth (after-tax) contributions work the opposite way. Box 1 includes the Roth amount because you’ve already paid income tax on it. The contribution is still itemized in Box 12, but under Code AA.¹ If you split contributions between the two, you’ll see both codes.

One thing to know about the match: your agency’s matching contributions always go into your Traditional balance, regardless of how you designate your own contributions.² That match doesn’t appear on your W-2 and isn’t taxed until you take a distribution.

Verify your W-2 numbers match your final pay statement for the year. If they don’t, ask your payroll office to correct the W-2 before you file.

How to Report TSP Withdrawals on Form 1040

Any time you take money out of your TSP, the plan reports the distribution to you and the IRS on Form 1099-R.³ You should receive it by January 31 of the year after the distribution.⁴

Four boxes do most of the work:

Box 1 – total amount of the withdrawal
Box 2a – taxable portion
Box 4 – federal income tax already withheld
Box 7 – a distribution code telling the IRS what kind of payment this was

You report the Box 2a amount as pension and annuity income on your Form 1040. The Box 4 withholding counts as a tax payment when you file.

Traditional TSP Distributions

Distributions from your Traditional balance are taxed as ordinary income under the general rules for employer plan distributions.⁵ In most cases Box 1 and Box 2a show the same number because the entire withdrawal is taxable.

If the TSP pays the money directly to you rather than rolling it to another retirement account, the plan must withhold 20% of the taxable amount for federal income tax.⁶ You can request a higher percentage, but you cannot go below 20% on an eligible rollover distribution paid directly to you.⁷

Roth TSP Distributions

Roth distributions get different treatment depending on whether they are “qualified.” A qualified distribution is entirely tax-free, and Box 2a on your 1099-R will show zero. Two conditions have to be met at the same time: at least five years have passed since January 1 of the year you made your first Roth TSP contribution, and you are at least 59½, permanently disabled, or deceased.⁷

The five-year clock starts on January 1 of the calendar year of your first Roth contribution, not the date you actually contributed. A first contribution made in October 2022 means the five-year period began January 1, 2022, and earnings become eligible for qualified treatment on January 1, 2027.⁸

If the distribution isn’t qualified, only the earnings portion is taxable. Your Roth contributions themselves always come back tax-free since you already paid tax on that money. The TSP calculates the split and reports only the taxable earnings in Box 2a. Box 7 shows Code B, identifying the payment as a designated Roth account distribution.⁹

Early Withdrawals Before Age 59½

Take money out before 59½ and you generally owe a 10% additional tax on the taxable amount, on top of regular income tax.¹⁰ Box 7 on your 1099-R signals whether this penalty applies. Code 1 means early distribution with no known exception. Code 2 means the TSP has recognized an exception. Code 3 means disability.

If Code 1 appears but you qualify for an exception, you can still claim it by filing Form 5329 with your return.⁹ If the full taxable amount is subject to the penalty and no exception applies, report the 10% directly on Schedule 2 of Form 1040.

The exceptions most commonly used by federal employees and service members:

Separation from service during or after the year you turn 55. For qualified public safety employees, including federal law enforcement officers, corrections officers, customs and border protection officers, federal firefighters, and air traffic controllers, the age drops to 50.¹¹
Total and permanent disability.
A series of substantially equal periodic payments based on your life expectancy. Changing the payment schedule too early triggers retroactive penalties.¹²
Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income.
Payments to a former spouse under a qualified domestic relations order.
Qualified birth or adoption expenses, up to $5,000 per child.

Reporting Rollovers and Transfers

Moving money from your TSP to another retirement account is generally not a taxable event, but the IRS still tracks it. The TSP issues a 1099-R for every rollover, and the receiving institution files Form 5498 to confirm the funds arrived.¹³

Direct Rollovers

In a direct rollover, the TSP sends the money straight to the new plan or IRA custodian. Box 7 on the 1099-R shows Code G for Traditional funds or Code H for Roth funds moving into a Roth IRA.⁹ Box 1 shows the full amount transferred; Box 2a shows zero. On your Form 1040, you report the total on the pensions line and write “Rollover” next to the taxable amount of zero.

Roth TSP funds can only roll over to a Roth IRA or another plan’s designated Roth account. Rolling Roth money into a traditional IRA would destroy the tax-free status of your contributions and qualified earnings.

Indirect (60-Day) Rollovers

With an indirect rollover, the TSP pays the money to you and you have 60 days to deposit it into another qualified retirement account. The TSP is required to withhold 20% of the taxable amount for federal tax when it cuts the check.⁶

This is where most people get burned. To avoid tax on the full distribution, you need to deposit the entire gross amount into the new plan within 60 days, including the 20% the TSP withheld. If you received $40,000 but the TSP withheld $8,000, you still need to deposit $40,000 into the new account, covering the $8,000 out of pocket. You recover the $8,000 as a tax credit when you file. If you only deposit the $32,000 you actually received, the missing $8,000 is treated as a taxable distribution and may also trigger the 10% early withdrawal penalty.

You still report this on Form 1040 with “Rollover” next to the pension income line. Keep the Form 5498 from the receiving institution as proof the funds landed on time.

TSP Loans: When They Hit Your Tax Return

A TSP loan is not a taxable event. You’re borrowing from your own account, so no 1099-R is issued and nothing shows up on your return as long as you keep up with payments. General-purpose loans must be repaid within 12 to 60 months. Loans for purchasing a primary residence get 61 to 180 months.¹⁴

The tax hit comes if you stop making payments. When a loan goes delinquent and you don’t catch up in time, the outstanding balance plus accrued interest is declared a “deemed distribution.”¹⁵ The TSP reports it on a 1099-R with Code L in Box 7, and the full unpaid balance appears as taxable income in Box 2a.⁹ If you’re under 59½, the 10% early withdrawal penalty applies on top.

Leaving federal service with an outstanding loan balance is treated differently. That creates a plan loan offset rather than a deemed distribution, and the 1099-R uses Code M if it qualifies as a qualified plan loan offset amount. For an offset triggered by separation from service, you have until your tax filing deadline (including extensions) for that year to roll the offset amount into another eligible retirement plan and avoid taxation.¹⁶ That’s a much more generous window than the standard 60-day rollover deadline.

Required Minimum Distributions After 73

Once you reach age 73, the IRS requires you to begin taking distributions from your Traditional TSP each year.¹⁷ The age moves to 75 starting in 2033. Your Roth TSP balance is not subject to required minimum distributions, a change that took effect under SECURE 2.0.

The TSP calculates your required amount each year from your age and your Traditional balance at the end of the prior year, using the IRS Uniform Lifetime Table. If your own withdrawals during the year don’t meet the required amount, the TSP automatically sends the difference. For your first distribution year, the supplemental payment goes out by the following April 1. For every year after that, the deadline is December 31.⁷

An RMD shows up on a 1099-R like any other distribution, and the taxable amount in Box 2a goes on the pension income line of your Form 1040. The TSP withholds 10% for federal income tax by default on RMD payments, though you can adjust that percentage anywhere from 0% to 100%.⁷

Missing an RMD is expensive: a 25% excise tax on the shortfall. That drops to 10% if you correct the mistake within the timeframe specified under IRC Section 4974(e).⁷ Report the penalty on Form 5329 attached to your return.

State Taxes Are a Separate Question

Federal tax treatment of the TSP is uniform, but state income tax varies widely. Several states have no income tax at all. Among those that do, many offer partial or full exemptions for retirement income, often tied to your age or total retirement income. Some states fully exclude government pension income while taxing private retirement accounts, so the rules can be surprisingly specific. Check your state’s department of revenue for the current treatment of retirement plan distributions before estimating your after-tax income in retirement.

1
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2
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3
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4
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5
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6
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7
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8
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9
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10
Thrift Savings Plan. Withdrawals In-Service
11
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12
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13
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14
The Thrift Savings Plan (TSP). TSP Loans
15
Thrift Savings Plan. TSP Booklet – Loans
16
Internal Revenue Service. Plan Loan Offsets
17
The Thrift Savings Plan (TSP). SECURE 2.0 and the TSP