Taxes and Your 2009 TSP Distributions: How To Lower Your Taxes

The drop in the value of your Thrift Savings Plan in 2008 may have you worried–especially if you are already retired. recent legislation allows investors to avoid taking the minimum required distribution in 2009. But to take advantage, you need to act sooner rather than later.

MRD is a short term for Minimum Required Distribution.

Individuals who are 70 ½ must begin taking MRDs from their Thrift Savings Plan (TSP) and from traditional Individual Retirement Accounts (IRAs) by April 1st of the year after the year when they reach 70 ½. MRDs are calculated based on the year-end balance of the account (i.e., the December 31, 2008 balance determines the 2009 MRD).

There are others who might also have to take MRDs. Those would be the owners of inherited (sometimes called “stretch”) IRAs. There is no requirement to take a MRD for Roth IRAs.

There is another exception that applies to federal employees who are still working at age 70 ½ or older. They do not need to begin MRDs from the TSP until April 1st of the year after they retire. MRDs must be taken from traditional IRAs whether you are working or not once you reach 70 ½.

By now, most of you readers younger than 70 ½ are considering moving on to other articles. (See, for example, Future Retirees: Do You Know Your Minimum Retirement Age?)

At the end of last year (December 23rd to be exact) President Bush signed the “Worker, Retiree and Employer Recovery Act of 2009”. This law allows 2009 MRDs to be waived. In other words, you don’t have to take a 2009 MRD unless you want to do so.

As MRDs from the TSP and from traditional deductible IRAs are fully taxable, not taking a MRD in 2009 would lower your taxable income for the year. With traditional non-deductible IRAs, only the earnings are subject to income tax.

In order to waive the 2009 Minimum Retirement Distribution, you need to contact your retirement account provider. The TSP form 73 would be the form used for waivers. The form is available on the TSP website. As the TSP requires monthly distributions (they call them “substantially equal monthly payments”) TSP account holders who do not want to take out a MRD should act sooner, rather than later. The TSP still requires a minimum distribution of $25 per month.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at to discuss schedules and costs.

About the Author

John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.