1) You must begin withdrawals when you turn 70 ½
In general, separated participants are expected (required) to begin withdrawing from the TSP once they attain the age of 70 ½, but you don’t have to start drawing on your account exactly when you turn 70 ½.
Assuming that you are separated from federal service, the actual required beginning date (RBD) is April 1st of the year after the one in which you turn 70 ½.
If your 70th birthday was June 30, 2018 you would turn 70 ½ on December 30, 2018 and your RBD would be April 1, 2019. If, on the other hand, your 70th birthday was on July 1, 2018 you would turn 70 ½ on January 1, 2019 and your RBD would be April 1, 2020.
2) It’s best to wait until your RBD to start taking RMDs
It doesn’t always make sense to wait until your required beginning date to take your required minimum distributions. After your first RMD, all subsequent ones must be taken by December 31. If you waited until April 1 for your first distribution, your second distribution would have to be taken in the same tax year. This may not be a problem for many, but for those who have large TSP balances it could result in two large withdrawals from the TSP in the same year, which might result in higher taxes.
3) You have to make required distributions even if you’re still working
The TSP has a “still working” exception. If you are still working at your federal job when you are 70 ½ or older, you do not have to take distributions from your Thrift Savings Plan. The required beginning date for someone who works past the age of 70 ½ is April 1 of the year following the year in which they separated. So, employee A, a FERS employee who is 72 years old, follows conventional FERS wisdom and retires on December 31, 2018; his RBD is April 1, 2019. But employee B, a CSRS employee who is also 72 years old follows conventional CSRS wisdom and retires on January 3, 2019; her RBD is April 1, 2020.
4) All retirement accounts require minimum distributions
Employer plans, like the TSP, have different rules than Individual Retirement Arrangements (IRAs). A Roth IRA does not have a requirement that RMDs be taken. However, a Roth 401(k) and your Roth TSP do have a requirement that separated participants who are 70 ½ or older take RMDs.
5) The 50% penalty is going to get you
The 50% penalty for not taking a required minimum distribution is unlikely to affect any separated TSP participants. Most folks who are separated, 70 ½ or older and have money remaining in the TSP are taking substantially equal monthly payments. If their payments are made according to the IRS life expectancy table (one of the choices the TSP offers) those payments follow RMD rules beginning at 70 ½, so there’s no penalty.
If they are taking monthly payments of a fixed dollar amount, and the amount they are withdrawing is not enough to meet the required distribution, the TSP will send them a special payment in late December; that payment will be just enough for them to hit the RMD threshold and avoid the penalty.
What about the separated employee who has not yet begun withdrawing from the TSP? Well, the TSP will begin vigorously pulling their chain as RMD time draws near.
Frankly, most of us will be withdrawing enough money from our TSP to more than satisfy the requirement to take minimum distributions.