Posted on Friday, 5th September 2025 by Dennis Damp

Gail recently asked, “If I use my Thrift Savings Plan (TSP) Required Minimum Distribution (RMD) to purchase an annuity, can I avoid paying taxes on that RMD?” Using your Thrift Savings Plan (TSP) Required Minimum Distribution (RMD) to purchase an annuity doesn’t eliminate the taxes due on the withdrawn funds.
RMDs are Taxable as Ordinary Income
Required Minimum Distributions (RMDs) are mandated withdrawals from tax-deferred retirement accounts like a traditional TSP once you reach a certain age (currently 73). These distributions are considered taxable income in the year you receive them, regardless of how you subsequently use the funds.
Annuity Purchases
The current TSP annuity rate is an attractive 4.85%. All or part of your TSP account can be used to purchase a life annuity through an outside vendor. Purchasing an annuity means that you pay now to receive monthly payments for the rest of your life (or, if you choose a joint life annuity, for the lives of you and your joint annuitant).
Essentially, you give up your money and control of it in exchange for guaranteed lifetime monthly payments. If you choose the annuity option, the TSP will purchase an annuity for you from its list of annuity providers. Once purchased, your annuity is not part of your TSP account, and you cannot change or cancel the purchase.
Annuity payments are taxable. If you purchase a TSP annuity, the annuity payments you receive later will be subject to federal income tax as ordinary income. The taxes on the original contributions and earnings are deferred until the annuity payments are accepted.
For those who transfer their TSP to an IRA at another financial institution, annuities can be purchased for as little as several years to lifetime; additional annuity options are available.
Key takeaway
You are subject to taxes on the RMD when you withdraw it from your traditional TSP, regardless of whether you use those funds to purchase an annuity. The annuity payments themselves will also be taxable when you receive them.
Annuities are long-term retirement investments, and they lock up your funds for an extended period. These funds aren’t available for emergencies or other short-term needs. Many also have surrender charges as high as 10% in the early years.
Roth TSP
If you have a Roth TSP balance, your contributions were made with after-tax dollars, and the TSP annuity payments composed of Roth contributions will not be taxed. The taxability of the Roth earnings depends on whether the distribution meets the IRS rules for qualified Roth distributions.
Rollovers
While you can roll over all or part of traditional TSP installment payments (if the duration is less than 10 years) to a traditional IRA or other eligible employer plan to continue tax deferral, you cannot roll over any part of your RMD.
Transferring Your TSP Account
After retirement, federal annuitants can transfer all or a part of their TSP account to a professional financial management firm or to a self-managed retirement account with companies like Fidelity and Vanguard, where many more investment options are available.
They can open a retirement account for you and assist with transferring all or part of your TSP to a brokerage account, where you can purchase any mutual fund, stock, ETF, or bond if desired.
If you elect to do this, be sure to have your TSP funds transferred directly to the new retirement account; otherwise, the transfer would be considered taxable by the IRS.
Federal employees can also make an age-based in-service withdrawal any time after they reach age 59½ as long as they are an active civilian federal employee or a member of the uniformed services.
Some use the age-based withdrawal option to transfer a part of their TSP to a private retirement account that they can personally manage or to a financial planner to compare their performance and services.
If you are an experienced investor, this may be the best approach. Others, with limited investment experience or who lack the time needed to manage their accounts personally, may consider moving funds to a fee-based financial advisor who manages their accounts on their behalf.
Helpful Retirement Planning Tools

- Financial Planning Guide for Federal Employees and Annuitants
- TSP Guide
- Free Retirement Planning Report
- Budget Worksheet
- Retirement Planning for Federal Employees & Annuitants
- The Ultimate Retirement Planning Guide – Start Now
- Deciding When To Retire – A 7-Step Guide
- 2026 Federal Employee’s Leave Chart
- Medicare Guide
- Social Security Guide

The information contained herein may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. You should consult a financial, medical, or human resource professional where appropriate. Neither the publisher nor the author shall be liable for any loss or other commercial damages, including but not limited to special, incidental, consequential, or other damages.
Last 5 posts by Dennis Damp
- FEHB & PSHB Open Season – Higher Premiums Heading Our Way! - August 29th, 2025
- I Never Thought to Ask! How About You? - August 21st, 2025
- Will Retirement Work For YOU? It Depends! - August 14th, 2025
- 2026 Federal Employees’ Leave Record Now Available - August 7th, 2025
- Are Your Savings Secure? A Fixed Income Update - August 1st, 2025
- Military Service Credit ALERT – Make Your Deposit Early - July 27th, 2025
- A Life Worth Remembering – YOU have a Story to Tell! - July 24th, 2025
- Retirement Planning Assistance – Finding Help (2025 Update) - July 17th, 2025
- Bits and Pieces – Updates, and Subscriber Feedback - July 11th, 2025
- Social Security Tax Relief for Millions of Senior Citizens - July 4th, 2025
- Apply for Retirement on OPM’s Online Application Service - June 27th, 2025
- New Retirement Application Portal Launched - June 20th, 2025
Tags: Annuity Pruchases, Annuity Purchases, ROTH Annuities, Transferring Your TSP Account, TSP, TSP Fixed Annuity, TSP RMDs, TSP Rollovers
Posted in ANNUITIES / ELIGIBILITY, BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION | Comments (0)
