How Much Tax Will You Pay on a TSP Withdrawal?

The tax on a TSP withdrawal depends on which balance you’re tapping and how old you are. Money coming out of a traditional TSP account is taxed as ordinary federal income at rates between 10% and 37% for 2026, with 20% withheld upfront on most lump-sum payments and an extra 10% early withdrawal penalty if you’re under 59½. Roth TSP withdrawals can come out completely tax-free once you’ve cleared two timing tests. State taxes may apply on top.

Traditional TSP: Taxed as Ordinary Income

Traditional TSP contributions went in before taxes, so the IRS treats every dollar coming out as ordinary income: your original contributions, agency matching, and all the investment earnings. That withdrawal stacks on top of any other income you earned that year, including Social Security, a federal pension, or part-time wages. Your combined total sets the bracket.

For 2026, single filers face these federal brackets:¹

10% up to $12,400
12% from $12,401 to $50,400
22% from $50,401 to $105,700
24% from $105,701 to $201,775
32% from $201,776 to $256,225
35% from $256,226 to $640,600
37% above $640,600

Married couples filing jointly get wider brackets; the 22% rate doesn’t start until $100,800.¹ A single large withdrawal can shove you into a higher bracket for the year, so retirees often spread distributions over several years to keep annual totals lower.

Roth TSP: Tax-Free If You Meet Two Tests

Roth TSP contributions were made with money you’d already paid tax on. The contribution portion of any withdrawal always comes out tax-free. Whether the earnings portion is also tax-free depends on two IRS tests, both of which must be met:²

You are at least 59½ (or permanently disabled, or the money is going to a beneficiary after your death).
Five years have passed since January 1 of the calendar year you made your first Roth TSP contribution.

Miss either test and the earnings portion is taxable as ordinary income. If you’re 62 but only started contributing to the Roth TSP three years ago, the earnings piece of any withdrawal still gets taxed. The TSP calculates the contribution-to-earnings ratio on each distribution automatically.³

What Gets Withheld Before the Money Reaches You

The tax bracket determines what you eventually owe. Withholding is what the TSP takes out before sending you the check. The two numbers rarely match, and the gap is where surprises happen at tax time.

Lump Sums and Short-Term Installments: 20%

Lump-sum withdrawals and installment payments scheduled to last fewer than ten years count as eligible rollover distributions. Federal law requires the TSP to withhold 20% of the taxable amount for federal income tax.⁴ You cannot opt out of the 20% floor, but you can request a higher rate on IRS Form W-4R if you expect to owe more.⁵

If your actual rate ends up higher than 20%, you’ll owe the difference in April. If it’s lower, the excess comes back as a refund.

Long-Term Installments: Wage-Bracket Withholding

Installments expected to last ten years or longer, or payments based on life expectancy, are treated as periodic payments. The TSP withholds using wage-bracket tables, defaulting to a single filer with no adjustments. You can change the rate to any amount, including zero, through your withholding election.²

RMDs and Hardship Withdrawals: 10% Default

Required minimum distributions, financial hardship withdrawals, and other nonperiodic payments default to 10% withholding, adjustable from 0% to 100%.² This is where people get hurt. A 10% withholding sounds manageable, but if you’re actually in the 22% or 24% bracket, the balance due at filing can be significant. Bumping the withholding up or making estimated tax payments avoids the shortfall.

Skipping Withholding With a Direct Rollover

If you don’t need the cash, a direct rollover avoids withholding entirely. Money moved straight from the TSP to a traditional IRA or another employer plan is not taxed and not withheld for that year. The same applies to a direct rollover of Roth TSP money into a Roth IRA or another plan that accepts Roth funds.²

The word “direct” matters. If you take a check and deposit it into the new account yourself, the TSP still withholds 20%, and you have 60 days to redeposit the full original amount. Anything not rolled over inside 60 days becomes a taxable distribution, and you’d need to cover the withheld 20% from your own pocket to complete the rollover.

The 10% Early Withdrawal Penalty

Pulling money out before age 59½ triggers a 10% additional tax on the taxable portion, layered on top of regular income tax.² On a $50,000 traditional withdrawal in the 22% bracket, that’s $11,000 in income tax plus $5,000 in penalty. Combined, $16,000 leaves the account before you see a dollar.

Several situations waive the penalty even if you’re under 59½:⁶

You separate from federal service during or after the calendar year you turn 55 (the “Rule of 55”).²
You’re a qualified public safety employee (federal law enforcement, firefighter, customs and border protection officer, corrections officer, or air traffic controller) who separates at 50 or after 25 years of service, whichever comes first.⁶
You are permanently and totally disabled.
The distribution goes to a beneficiary after your death.
You are terminally ill.⁷
You take substantially equal periodic payments based on your life expectancy using an IRS-approved method, continuing for at least five years or until 59½, whichever is later. Modifying the schedule early causes the IRS to retroactively apply the 10% penalty to all prior distributions plus interest.⁸
Up to $5,000 within one year of a qualified birth or finalized adoption.²
One emergency personal expense distribution of up to $1,000 per calendar year, repayable within three years.⁹

These exceptions waive the 10% penalty only. Regular income tax still applies to every traditional TSP withdrawal no matter the reason. Claim any exception on IRS Form 5329 when you file.⁶

One trap worth flagging: a financial hardship withdrawal is not on the exceptions list. If you’re under 59½ and your situation doesn’t fit one of the enumerated exceptions, the 10% penalty applies even though the TSP allowed the hardship distribution.⁶

Required Minimum Distributions at 73

Once you turn 73, the IRS requires annual withdrawals from your traditional TSP whether you want the money or not. The age applies to anyone born after December 31, 1950, and rises to 75 starting in 2033.¹⁰ The amount comes from your traditional balance and an IRS life-expectancy factor.

Your Roth TSP balance is no longer subject to lifetime RMDs under the SECURE 2.0 Act. Only your traditional balance counts, and only traditional distributions satisfy the requirement.¹⁰

Missing an RMD is expensive. The IRS charges a 25% excise tax on the shortfall, dropping to 10% if you take the missed amount within two years.¹¹

Combat Zone Pay Contributions Stay Tax-Free

Members of the uniformed services who contributed tax-exempt combat zone pay to the TSP get a permanent break. Those contributions were never taxed going in and aren’t taxed coming out, whether they sit in a traditional or Roth balance.²

In a traditional account, every withdrawal includes the same proportion of tax-exempt money as your overall traditional balance. If 15% of that balance came from combat zone pay, 15% of each distribution is tax-free. Earnings on the tax-exempt contributions are still taxable. In a Roth account, tax-exempt contributions blend into the broader Roth balance and are never taxed or penalized.²

State Taxes on Top

Federal tax is only part of the bill. Most states with an income tax treat traditional TSP distributions as taxable income, though the details vary. Several states have no income tax at all, and others fully or partially exempt federal retirement income, sometimes with age or income conditions. Checking your state’s current rules is worth doing before scheduling a large distribution, especially if you’re weighing where to live in retirement.

The TSP does not withhold state taxes automatically. Whatever your state charges, you handle through estimated payments or your state return. Overlooking state tax after accounting for federal withholding is a common and avoidable mistake.

1
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
2
Thrift Savings Plan. Changes to Tax Rules About TSP Payments
3
Thrift Savings Plan. Withdrawals and Distributions From Your Roth TSP Balance
4
Office of the Law Revision Counsel. 26 USC 3405 – Special Rules for Pensions, Annuities, and Certain Other Deferred Income
5
Internal Revenue Service. Form W-4R – Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions
6
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
7
Internal Revenue Service. Topic No. 558, Additional Tax on Early Distributions From Retirement Plans
8
Internal Revenue Service. Substantially Equal Periodic Payments
9
Internal Revenue Service. Notice 24-55 – Certain Exceptions to the 10 Percent Additional Tax
10
The Thrift Savings Plan. SECURE 2.0 and the TSP
11
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)