For most retirees, yes, TSP withdrawal mistakes can be fixed before the money moves, and First Premier Bank says costly ones come from taking money in the wrong tax year, not from taking too much. Rule of thumb: add a planned single withdrawal to this year's expected MAGI. If the total crosses an IRMAA line ($218,000 joint or $109,000 single for the 2026 standard $202.90 Part B premium, measured 2 years later), split the draw across 2 tax years. The TSP withholds a mandatory 20% on the gross amount either way.
Your own income is the variable here. Everyone faces the same IRMAA lines, and your MAGI's distance from them decides whether any of this matters to you. Three things are fixed: the 20% withholding on money paid out directly, the two-year Medicare lookback, and the rule that a TRICARE For Life retiree can't drop Part B to dodge a surcharge. Below, we test each part of your draw against 3 options and put a dollar cost on each mistake.
Tax-efficiency here has a narrow meaning. Some moves cut what you pay. Others only shift it to another year, and the article says which is which.
By Hiroshi Tanaka, CFP — Retirement Planning Specialist | Reviewed by Marcus Thompson, CFAHiroshi builds retirement income plans using the bucket strategy, coordinating taxable, tax-deferred, and tax-free accounts.
Add the gross amount of any single TSP withdrawal to this year's expected MAGI before you file the request. At $228,000 against a $218,000 joint line, a tidy mortgage payoff costs about $1,949 in extra Part B premiums.
CPA and Tax Director, First Premier Bank
The 20% withheld on a TSP payment is a prepayment, not the final tax cost. I'd rather a client see that number on paper in December than in April.
Senior Financial Planner, First Premier Bank
A widow files single the year after a death, so the $109,000 line applies to the same income. Draw traditional dollars while both spouses are alive and the survivor's tax cost usually falls.
CFP® and Lead Advisor, First Premier Bank
Three ways to take the money
A retiree starting TSP income draws has 3 realistic options: one large withdrawal, a split across 2 tax years, or IRA draws while the TSP balance sits. All three can deliver the same cash. What differs is which tax year, and which Medicare lookback year, the income lands in.
First Premier Bank compares the 3 options on the same criteria: this year's MAGI, how much is withheld compared with the real tax cost, and what each leaves for the survivor. The table puts them side by side.
If your MAGI is far from any IRMAA line, the columns look more alike than they feel, and the fastest option usually wins.
The 3 options at a glance
| Criterion | One large draw | 2-year split | IRA draws first |
|---|---|---|---|
| Speed | Fastest | 2 payments | Needs a rollover first |
| Federal withholding | Mandatory 20% | 20% on TSP part | 10% default, adjustable |
| MAGI years touched | 1 | 2 | Your choice each year |
| Medicare lookback | One year, full amount | 2 smaller years | Small yearly steps |
| Survivor effect | Big single-year hit | Spread over 2 years | TSP stays intact |
| Fund costs | TSP costs end | Partly end | TSP costs stay low |
- Option 1, one large withdrawal: fast, but the TSP withholds a mandatory 20% federal tax. You can elect more, not less, and the whole gross amount lands in one tax year.
- Option 2, a 2-year split: a December payment and a January one, or a TSP draw now and an IRA draw in January. MAGI is measured in 2 separate years, and the 60-day rollover can shrink an oversized draw after the fact.
- Option 3, IRA draws while the TSP sits: IRAs have no mandatory 20%. The default is 10%, which you can raise, lower or waive on Form W-4R, and the TSP balance keeps its low fund costs.
Can we take one big withdrawal without a tax spike?
Yes, if the draw keeps your MAGI under the next IRMAA line, or you're already far above it. For 2026 the SSA applies the standard $202.90 Part B premium up to $218,000 joint or $109,000 single MAGI from 2 years earlier, and the lines reset every year.
Mistake 1 is timing: taking the big draw in the last year of part-time work, too early for a clean lookback. That year also sets the Part B premium 2 years later. TRICARE For Life requires Part B, so a military retiree can't drop it to dodge the surcharge.
Mistake 2 is the wrong gross-up. Requesting $100K and expecting $100K gets you $80K after the 20% withholding, so many people file a second request in the same year and stack more income. To net $100K, request $125K ($100K ÷ 0.8).
If the draw keeps MAGI well under the next line, splitting saves little. Take it in one piece. The same goes if you're far above the top line already.
The IRMAA line test
The gross-up arithmetic
Before you request any single TSP withdrawal, add its gross amount to this year's expected MAGI. If the total crosses an IRMAA line ($218,000 joint or $109,000 single) and splitting across 2 tax years keeps both years under it, split.
The year's due dates
The TSP mails the 1099-R by January 31. Box 1 is the gross payment, box 2a the taxable amount and box 4 the federal tax withheld; check all 3 before the April 15 return and the first estimated payment.
Part B initial enrollment is a 7-month window around the 65th birthday month: 3 months before, the month itself, 3 months after. TRICARE For Life needs Part B in place, so Tomasz's draw timing has to be planned around that window.
Request any draw meant for this tax year by early December. The TSP needs processing time, and a request sent on December 30 can pay in January and land in next year's MAGI.
Medicare's IRMAA notice comes from the SSA late in the current year. Form SSA-44 covers life-changing events such as stopping work, but a one-time TSP withdrawal doesn't qualify.
| When | Due date or event | What it decides |
|---|---|---|
| January 31 | TSP mails the 1099-R | Gross, taxable and withheld amounts |
| April 15 | Federal return and first estimate | Whether 20% covered the tax cost |
| 3 months before 65th birthday month | Part B enrollment window opens | TRICARE For Life stays in force |
| 60 days after a payment | Rollover window closes | Last chance to shrink a draw |
| Early December | Last safe request date | Draw counts in this tax year |
| November to December | SSA mails the IRMAA notice | Next year's Part B premium |
Tomasz and Marta's mortgage payoff
Hypothetical: Tomasz (64) retired as an Air Force master sergeant and works part-time in airport operations. Marta (66) is a retired school secretary. They have $650K across the TSP and 2 IRAs, and he has a 60% VA rating. Their taxable income is $78K: $36K retired pay, $24K from his airport job and her $18K pension. His VA pay is tax-free.
The move that looks smart: before the airport job ends, Tomasz requests one $150K TSP withdrawal in October to clear their $120K mortgage. The 20% withholding takes $30K and $120K arrives, exactly enough. It feels tidy.
The cost shows up later. MAGI becomes $78K + $150K = $228K, above the $218K joint line. Two years on, each Part B premium rises from $202.90 to $284.10, an extra $81.20 a month. That's $81.20 × 12 × 2 = $1,948.80, and with TRICARE For Life neither can drop Part B.
The fix has to happen inside 60 days. They deposit $75K of the cash into his traditional IRA and pay $45K on the mortgage now. Year 1 taxable income is $78K + $75K = $153K. After his job ends, a $75K IRA draw in January pays the rest, and year 2 is $54K + $75K = $129K. Both years stay under the line, assuming neither claims Social Security in those 2 years.
What the fix doesn't change: the $150K is still taxable, only spread over 2 years. The IRMAA saving is real. Any income-tax saving depends on brackets that change every year, so check the current IRS brackets. First Premier Bank runs MAGI for both years side by side before suggesting a payment date. The site's calculator lets you plug in your own figures and run the same steps.
Every investment can lose value, including the money you put in, so a draw delayed to January can be worth less when it's paid. And if you need the full sum this month for a medical bill, the delay may not be worth it.
The move that looked smart
The fix inside 60 days
Withholding is not the tax cost
Mistake 3 is treating box 4 of the 1099-R as the final tax cost. The 20% is only a prepayment: you get a refund in April if your real rate on the extra income is lower, and owe more if it's higher. Installments expected to last 10 years or more are withheld like wages using Form W-4P, while single withdrawals and shorter installments get the 20% under Form W-4R.
Rules that moved under SECURE 2.0
Mistake 5 comes too late, from older roadmaps. RMDs now start at 73, or 75 for anyone born in 1960 or later, and that means 75 for both Tomasz and Marta. Roth TSP balances no longer have RMDs during the owner's life.
TSP rule changes also allow several partial withdrawals and installment changes at any time. A roadmap written for RMDs at 70½ or 72 should be redone.
Simply waiting until 75 isn't free, either. The traditional balance keeps growing, and the larger RMDs then stack on 2 Social Security checks and his retired pay. For comparing the pension and TSP math, the site's Blended Retirement System article covers the earlier years.
Does it change if one of us dies first or our balance is smaller?
Yes. After the year of a spouse's death, the widow files single, so the same income is measured against the $109,000 single line instead of $218,000 joint. Drawing traditional money while both spouses are alive can lower the survivor's later tax cost and Part B premiums.
Balance matters too. With a traditional balance under roughly $250K, RMDs at 75 stay modest and spreading draws matters less; at $650K it matters more. If you separate from service during or after the calendar year you turn 55, TSP draws skip the 10% early penalty. IRA draws before 59½ don't get that exception.
Mistake 4 is out of order. By default a draw comes proportionally from traditional and Roth balances. That spends tax-free Roth dollars in a low-income year when traditional dollars would have been taxed lightly, so check the source options on the request form.
For heirs, a spouse can keep the TSP as a beneficiary participant account. Adult children generally have 10 years to empty an inherited traditional balance, often during their own peak-earning years, while qualified Roth money reaches them free of income tax. The site's Survivor Benefit Plan analysis page covers the pension side.
Survivor and filing status
Source order and heirs
Which option fits Tomasz and Marta, and who else?
A 2-year split fits Tomasz and Marta, because their MAGI sits near the $218,000 joint line once a big draw is added. It also fits anyone planning a large draw in a last working year. The other two options fit different people.
One large withdrawal fits a one-time need where MAGI stays under the next IRMAA line even with the draw, or where income is already well above it.
IRA draws first fit people who want to set their own withholding and keep the TSP's low costs, plus single filers or widows facing the $109,000 line.
What you can check alone, and what to bring to First Premier Bank
You can add a planned draw to this year's MAGI, compare it with the IRMAA table and do the 20% gross-up yourself in 10 minutes. The order of draws across a TSP and 2 IRAs, in the same year as Part B enrollment and a Social Security claim, is worth a conversation. First Premier Bank lays these out as a short list of decisions by due date, with both years' MAGI beside each; bring the last 1099-R, the TSP and IRA statements, the DFAS retiree account statement and the VA rating letter.
The costly TSP mistakes come from taking money in the wrong tax year, not from taking too much.
What people ask about TSP withdrawal mistakes
Why does my TSP 1099-R show a taxable amount in box 2a that's smaller than the gross payment in box 1?
How much do I request from the TSP to have $50K left after the 20% withholding?
My part-time airport job ends in June; should I wait until July to start TSP income draws?
Read the rules at the source
This is general information and education, not individual investment, tax, or legal advice. Investing involves risk, including loss of principal. Before making any financial decision, talk to a qualified professional about your specific circumstances.