Imagine you are a kid (a retiree) saving money in your piggy bank. When grown-ups ask you about it, you simply defer the question by promising to pay them back later. 

However, when you do grow up, the adults (the government) come up and say, “Hey! You can not keep your money in the piggy bank forever? It’s time to pay the taxes you promised.”

This is what RMDs are: where you can take up a part of your retirement money every year to avoid paying heavy taxes later.

Required Minimum Distributions (RMDs) may seem like a distant technical detail that you don’t need to worry about unless suddenly they turn into a deadly, worrisome factor. For any federal employee who has saved well in their Thrift Savings Plan (TSP), RMDs may feel like a “tax time bomb” when retiring. The good news? With a better understanding and a bit of proactive planning, you can control your RMDs before they do you. 

Let’s break down what RMDs are, when they should begin and how they may affect your TSPs. Also, the most important thing: what should be your strategy to minimize the tax hit once they do begin? 

What are RMDs?

While contributing to your traditional IRA, TSPs or any other retirement account that is “pre-tax,” you are basically deferring taxes till you take your money out. But, eventually, the government will want its share of the money. This is where RMDs come in. 

Simply put, RMDs are compulsory withdrawals that start once you reach a specific age. The goal here is quite simple: you cannot book your cash in investments that grow tax-free until you withdraw it. RMDs ensure that you continue to withdraw a portion of your funds and pay certain taxes on them. 

So, even when you will not need money from your IRA or TSP, you will need to take some out. These withdrawals will be taxed as usual income. 

When Should You Start RMDs?

The age for RMDs has, fortunately, changed over the years due to legislation. As of now, here is when you need to begin:

• Your first RMD must be taken by April 1st once you reach the required age bracket. Every RMD after the first should be withdrawn by December 31 of each year. 
• If you are turning 73 by 2026, your first RMD begins on the first of April in 2027. That said, your second RMD will be due on December 31, 2027. This means you have to take up about two RMDs in a year, which potentially doubles your taxable RMD for a year. 
• For this reason, most retirees plan to take out their first RMDs in the same year they have reached the starting point. This helps them avoid the double hit. 

How Much Do You Need To Withdraw for an RMD?

The RMD amount you have to withdraw is based on the balance amount you have in your account at the end of the previous year and a fraction from the IRS Uniform Lifeline Table. This Table represents your expected lifespan. 

Essentially, you calculate your account balance and divide it by the corresponding number on your IRS table, which corresponds to your age. 

Each year, as you get older, your life expectancy factor decreases, which means your required minimum distribution percentage increases. In other words, the older you get, the more the government makes you take out.

Read Also: TSP 2026 Changes: Smart Strategies for Federal Employees

This is a vital distinction. Roth IRAs are not connected to RMDs. Here, you can keep your money tax-free for as long as you want. Unlike the traditional retirement plans, where RMD is mandatory starting from 70-73, Roth IRAs do not have to be taken out in your lifetime. 

Regardless, if the Roth account has been established within your employer’s plans, such as a Thrift Savings Plan (Traditional vs. Roth), this follows different rules. Before 2024, even Roth balances in TSPs and other workplace plans were subject to RMDs, but new legislation (the SECURE 2.0 Act) eliminated that requirement starting in 2024. 

How to Minimize the Tax Impact of RMDs

Now, let’s address the main question, now that you have a better understanding of RMD. This is where strategic planning comes into play. 

1. Consider Going for Roth Conversions Before Starting With RMDs

If you retire before your RMD age, you may have a window between when your paycheck stops and RMDs begin. Around that time, your taxable earnings would be lower. This makes it a good time to convert a fraction of your traditional IRA or TSP to a Roth IRA. 

You will then be paying taxes on the money converted that year. However, it reduces the money in your accounts, which means lower RMDs or lower taxes later on. 

2. Begin your Initial Withdrawals From the Traditional Side

This can be another great strategy, where you can take out money from your traditional account before drawing it from the Roth accounts. 

This will also reduce the balance in your traditional accounts and therefore, your future RMDs. It will also allow the balance in your Roth accounts to continue being tax-deferred. 

3. Use Qualified Charitable Distributions (QCDs)

If you are a philanthropist who wishes to spend your savings on charity post-retirement, QCDs are one of the most tax-efficient strategies that you can opt for. 

Once you are 70 or over, you can donate more than $100,000 a year directly through your IRA to any charity that qualifies. The donation will count toward your RMD and will not be considered taxable income. 

This would reduce your Adjusted Gross Income (AGI) and help you lower medical premiums and tax returns —all while supporting a cause. 

This is one of those areas that the IRS does not take lightly. If you miss your RMDs, the penalty used to be 50% of the amount you were supposed to have withdrawn, but this has recently been changed to 25%. However, it can even be as low as 10% if you make quick corrections. 

Regardless, it is not something you should play around with. 

Are RMDs a Problem?

Another important factor is that RMDs can be a challenge for individuals who frequently save. If your traditional IRA or TSP has surpassed seven figures, your first RMD can push you to a higher tax bracket. This can also inadvertently increase your Part B medical premiums. 

The key, therefore, is to plan well and early. To reduce your pre-tax balances, gradually control your taxable income over time.

Read Also: How 2026 Tax Law Changes Could Impact Your TSP

RMDs do not have to spoil your retirement plans. With proactive and strategic steps, such as early withdrawals, Roth conversions or charitable strategies, you can effectively manage your tax scenario. This means you can make sure your retirement income strategy works for you, not against you.

Federal employees who take the time to plan often find that RMDs aren’t the monster they feared—they’re just another piece of the puzzle.

If you are unsure how RMDs may affect your retirement plans, it is worth discussing with a financial planner for federal employees who specializes in specific benefits. The earlier you start, the more flexibility you will have to minimize taxes and maximize your lifetime income.