It’s hard not to like the "tax free." However, we didn’t mean to get you extremely worried. Our point was simply that every withdrawal you make from the TSP or any other traditional retirement plan will be treated as ordinary income. That’s the bad news. The good news is that no one is going to force you to take out all of your TSP in one big distribution that could create a huge tax bill. In fact, for most folks, the first required minimum distribution at age 70 ½ will represent less than 4 percent of their account balance. However, that doesn’t mean you should just sit around and wait until you get to 70 ½. Here are a couple of approaches you could discuss with your tax adviser:
The exact strategy that you adopt will be based on your specific situation, but the important thing is to start looking at your options now, while you have time.