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Request InformationMost TSP withdrawal mistakes come from taking too much in 1 tax year: the plan withholds 20% at once, and Medicare premiums can rise 2 years later. The moment usually arrives with the TSP confirmation showing a $100,000 request paid out as $80,000, because the 20% federal withholding on single withdrawals can be raised but never lowered.
We wrote this for a retiree who is about to draw on the Thrift Savings Plan for the first time, especially one who also collects a military pension or an SBP annuity. If your withdrawal is already set up and your income runs far above the Medicare tiers, the installments section further down is the part that applies to you. First Command Financial Services starts with the downside: what each choice costs in dollars, what you can undo, and what you can't.
By Elena Rodriguez, CFA — Portfolio Manager | Reviewed by Marcus Thompson, CFAA withdrawal that costs nothing this year can cost $2,434.80 two years later. Check your income against the Medicare tiers before you press submit.
Daniel Whitfield, CPA, Tax Director at First Command Financial Services
We'd rather keep two years of spending in the G Fund, because selling stock funds in a down year is what really hurts a retiree.
Karen Alvarez, Senior Financial Planner at First Command Financial Services
A $100,000 single TSP withdrawal pays $80,000 in cash, because the plan withholds 20%, or $20,000, for federal tax. Add $30,000 of other taxable income and your modified adjusted gross income (MAGI, the income figure Medicare reads) reaches $130,000. Two years later, Medicare Part B rises from $202.90 to $284.10 each month, using 2026 tiers.
These two costs are not the same kind. The withholding is a prepayment that's credited when you file, so some of it may come back as a refund. The Medicare surcharge (called IRMAA) is a real extra cost, and nobody refunds it. Most retirees miss it because the bill arrives two years after the withdrawal, long after they've stopped thinking about that TSP request.
You can size a request before you make it. First, divide the cash you need by 0.8 to get the request ($60,000 ÷ 0.8 = $75,000). Then add your other taxable income ($75,000 + $30,000 = $105,000). Last, compare the total with $109,000 single or $218,000 joint; if it's over, split the request across 2 tax years.
The table assumes $30,000 of other taxable income and a single filer. Watch the last column: the withholding grows evenly, but the Part B premium jumps in steps.
What can you still undo? An eligible single withdrawal can be rolled into an IRA within 60 days. If you replace the withheld 20% from other cash, the whole amount stays untaxed, and that rescues both the tax and the MAGI. Once the 60 days pass, the income stays on that year's return for good.
A $120,000 single withdrawal at age 67 costs nothing extra in Medicare that year. With $30,000 of SBP it puts MAGI at $150,000, and at age 69 Part B rises to $405.80 each month, $2,434.80 more for that year before any Part D surcharge.
| Withdrawal requested | Withheld at 20% | Cash in hand | Part B each month, 2 years later |
|---|---|---|---|
| $50,000 | $10,000 | $40,000 | $202.90 |
| $100,000 | $20,000 | $80,000 | $284.10 |
| $150,000 | $30,000 | $120,000 | $527.50 |
Waiting five years can cost $974.40 a year in Medicare premiums, because a delayed withdrawal lands on top of Social Security income. The exact bill depends on your other income, but the pattern holds: the low-income years before Social Security and required minimum distributions (RMDs) are the cheapest time to draw.
A hypothetical household shows it. Ruth, 67, is the widow of an Army sergeant major. She gets about $30,000 a year of taxable SBP annuity, owns her home outright and has about $600,000 across an IRA and an inherited TSP account. She needs $40,000 a year of cash until she claims Social Security at age 70.
Acting now, Ruth requests $50,000 each year from the inherited TSP at ages 67 to 69. The 20% withholding ($10,000) leaves $40,000. Her MAGI is $30,000 + $50,000 = $80,000, under $109,000, so Part B stays $202.90.
Acting 5 years later, she spends cash savings at 67 to 69 instead. At age 72 she takes the same $50,000, after a $40,000 benefit has started, of which 85% ($34,000) is taxable. MAGI becomes $30,000 + $34,000 + $50,000 = $114,000. At age 74 Part B is $284.10, which is $81.20 × 12 = $974.40 more that year. Month by month, that's $202.90 versus $284.10.
Ruth's adult children inherit whatever is left in the inherited TSP and the IRA. Most non-spouse beneficiaries must empty those accounts within 10 years, often during their own peak-earning years. Drawing more in Ruth's low-income years can lower the family's total tax. First Command Financial Services keeps the next 2 years of planned withdrawals in the G Fund or cash, so a slump never forces Ruth to sell stock funds. The stock funds she keeps can lose value, so what's left for her and her heirs may be less than today's balance.
Before you request anything, run this list against your own accounts and put the questions to the right person:
TSP installments expected to last 10 years or more are not eligible rollover distributions, so they're withheld like wages and the 20% rule doesn't apply. Those payments can't be rolled into an IRA either. Shorter installment series keep the mandatory 20%. A fixed-dollar installment keeps selling shares after a market drop, so check which funds each payment draws from. A new request later can adjust the amount or end the payments.
Plan for a 25% market drop right after your schedule starts: hold 2 years of withdrawals outside stock funds, so you never sell at the bottom. A health event that forces a large one-time withdrawal can push MAGI over an IRMAA tier 2 years later. The RMD starting age has already changed twice in recent law (now age 73, or age 75 for people born in 1960 or later), so recheck your schedule whenever tax law changes.
Yes. You can generally change the amount or frequency of TSP installments, or stop them, by submitting a new request. Already-paid money can't be undone, though, and a single withdrawal can only be reversed by a 60-day rollover. Check which funds your payments draw from before you change them.
A withdrawal counts for the calendar year in which it's paid, so money paid by December 31 lands on that year's return. Medicare reads your income from 2 years earlier, so a payment made this year can raise Part B premiums two years from now.
Single TSP withdrawals face a mandatory 20% federal withholding that can't be lowered, while IRA withholding can usually be set lower. The tax owed is the same if the income is the same. The difference is cash flow and how much you must front before you file.
The balance passes to the beneficiaries named on the account. Most non-spouse beneficiaries must empty inherited accounts within 10 years, often while earning a high income themselves. Keep the beneficiary form current, and ask a CPA how withdrawals in the widow's low-income years could lower the family's total tax.
A single withdrawal fits a one-time need when income stays well under $109,000. Spreading withdrawals fits a widow or retiree with low-income years before Social Security or RMDs, though it won't help if other income already sits well above an IRMAA tier. Installments fit someone who wants a steady payment and will keep a G Fund buffer. You can do the gross-up math and the checklist alone; choosing which years carry the big withdrawals, while weighing heirs and Medicare, is worth a conversation with First Command Financial Services. This article leaves out state income tax, which varies by state.
This article is general financial information only, not investment advice tailored to your circumstances. Investing involves risk, including loss of principal. Before making any financial decision, consult a qualified professional about your specific situation.