The Thrift Savings Plan is a great benefit that all federal employees should be using to accumulate funds for retirement, but it doesn’t work quite as smoothly once you are in retirement.
Here are three things you still can’t do with TSP that could otherwise benefit you in retirement, plus one big thing that changed recently.
#1 You cannot specify which funds to take TSP distributions from.
This has long been a hindrance for retirees with TSP. Any distribution from the Plan will be prorated according to your balance. For example, if your TSP allocation is 62% C fund, 38% G fund, any distribution would be apportioned as 62% from the C fund and 38% from the G fund.
There are many reasons you may want to take a distribution from a specific fund in retirement. For example:
- If one fund performed very well in a given year, you may want to take a distribution from that fund in order to rebalance your asset allocation.
- If you were employing the so-called TSP “barbell strategy,” you would hold a specific number of years of expenses in the G fund and take distributions from that fund – which won’t fluctuate in value – when the stock market is down. The theory is that this strategy allows your stock investments time to recover. But because TSP won’t allow distributions from a specific fund, you would be forced to rebalance your asset allocation every month if you were taking monthly distributions.
One thing you can control: if you have both traditional and Roth money, the TSP has you choose whether a withdrawal comes only from your traditional balance, only from your Roth balance, or proportionally from both. That choice matters for TSP distribution and tax planning in retirement. But within whichever balance you pick, the money still comes out of every fund you own in proportion.
#2 You cannot specify tax withholding on some distributions.
TSP doesn’t let you choose a lower withholding rate on single withdrawals or on installment payments expected to last less than 10 years. These are treated as “eligible rollover distributions,” so if you don’t transfer them to an IRA or other plan, TSP must withhold at least 20% for federal taxes. This doesn’t apply to transfers, only to distributions paid to you.
Here is what TSP says on the matter: “We’re required to withhold at least 20% of any taxable part of your installments that you do not directly transfer.”
This means that if you take one of these payments, TSP will withhold a minimum of 20% for federal taxes, but you may elect to have a higher percentage withheld.
This can be cumbersome for people who take a distribution for a specific need and are only in the 12% tax bracket. Yes, the extra 8% will be returned when you do your tax return, but it may cause account holders to take a larger withdrawal to make up for the extra 8% withheld because they need the funds at the time of the withdrawal. Withholding is worth getting right from the start; see why you should adjust your tax withholding in your first year of FERS retirement.
#3 You cannot do a Qualified Charitable Distribution (QCD).
A qualified charitable distribution is a great way for a retiree to save tax dollars on charitable contributions. QCDs allow a person who has reached age 70½ to donate funds to a charity directly from their IRA, up to $111,000 in 2026. When a QCD is executed, no taxes need to be paid on the distribution. QCDs are only allowed from IRAs, not from the TSP.
A QCD can also help a retiree satisfy their Required Minimum Distribution (RMD). Here is an example:
Joe Federal and his wife give $6,000 a year to charities. Their house is paid off so they don’t have mortgage interest to deduct, and they pay $7,000 a year in state and local taxes. Their itemized deductions add up to $13,000. The 2026 standard deduction for married couples filing jointly is $32,200 (plus an additional $1,650 for each spouse 65 or older), so they would need to give more than about $25,200 a year before itemizing would make sense (more if they are 65 or older). They will take the standard deduction, and their $6,000 of gifts produce little or no tax benefit. Starting in 2026, non-itemizers can deduct up to $2,000 of cash gifts to charity on a joint return, but that only covers a third of what Joe gives.
Instead of making his charitable contributions with cash, Joe could do a qualified charitable distribution directly from his IRA once he reaches age 70½. The full $6,000 would never show up in his taxable income, and once his RMDs begin, the QCD would count toward his annual RMD. Keeping that money out of his adjusted gross income can also help with Medicare premiums and the taxation of Social Security.
For more ways to make your giving go further, see how to reduce your retirement tax bill by strategic giving.
What changed recently: Roth conversions are now allowed inside the TSP
For years, one of the biggest items on this list was that you could not do a Roth conversion inside the TSP. That is no longer true. On January 28, 2026, the TSP launched in-plan Roth conversions, so you can now move traditional TSP dollars into Roth TSP without first rolling them to an IRA.
A few rules to know: each conversion must be at least $500, you must leave at least $500 in each non-Roth source, you can do up to 26 conversions a year, and conversions can’t be undone. The TSP does not withhold taxes on a conversion, so you need to pay the tax from other money. I cover how to decide how much to convert in Roth TSP Conversions.
Should you move your TSP to an IRA?
Retirees often face the decision of whether or not to move funds from their TSP to an IRA. These limits tilt in favor of a TSP transfer for many people, but the TSP still has real advantages, such as very low costs and the G fund. I walk through the trade-offs in TSP or IRA in Retirement? 12 Differences.
If you are retiring soon or are retired, and would like help from a fiduciary on your retirement planning journey you are welcome to schedule an introductory call with me.
Brad Bobb, CFP®, Bobb Financial, is an expert in federal benefits and retirement planning for federal employees.
This article is for educational purposes only and is not individualized financial advice. Figures are illustrative.