TSP Missed RMD Penalty: What Happens If You Don't Take Your Required Minimum Distribution

The Penalty for Missing a TSP Required Minimum Distribution

Missing a required minimum distribution from your Thrift Savings Plan triggers an IRS excise tax on the amount you should have withdrawn but didn't. Before SECURE 2.0, that penalty was brutal — 50% of the shortfall. Miss a $12,000 RMD and you'd owe $6,000 to the IRS on top of whatever income tax was due on the distribution itself.

SECURE 2.0, effective for tax years beginning in 2023, cut that penalty substantially:

• Standard penalty: 25% of the missed amount (down from 50%)
• Reduced penalty: 10% if you correct the error within a two-year "correction window"

That correction window runs from the beginning of the tax year when the RMD was due through the end of the second following tax year. Miss your 2026 RMD? You have until December 31, 2028, to take the distribution and file the corrected excise tax return. Correct within that window and your penalty drops from 25% to 10%.

When TSP RMDs Begin

Your required beginning date depends on your birth year under the SECURE 2.0 age schedule:

• Born 1951–1959: RMDs start at age 73
• Born 1960 or later: RMDs start at age 75

The first RMD must be taken by April 1 of the calendar year following the year you turn the applicable age. Every subsequent RMD is due by December 31 of each year. If you delay your first RMD to the April 1 deadline, you'll owe two RMDs in that second calendar year — which can push you into a higher tax bracket.

Still-working exception: If you're still employed in a federal civilian or uniformed services position at RMD age, you can defer TSP RMDs until April 1 following the year you actually separate. This exception only covers your active employer's plan — it doesn't apply to traditional IRAs or old 401(k)s from prior employers.

Roth TSP exemption: Starting in 2024, Roth balances within the TSP are completely exempt from lifetime RMDs. The TSP calculates your annual RMD based solely on your traditional (pre-tax) balance. If your entire TSP is Roth, you have no RMD obligation at all during your lifetime.

How the TSP Handles RMDs Automatically

The TSP has a built-in safeguard: if you haven't made a withdrawal election for your first RMD year, it sends a notice in the following January and automatically sends the first-year RMD if no election is received by March 1 of the second distribution year; the payment must be made by April 1. They'll withhold federal income tax at whatever rate is on file (defaulting to 10% if you haven't submitted a W-4R) and deposit the rest into your bank account.

This automatic distribution prevents you from missing the RMD entirely, but it has limits. The TSP calculates the minimum required amount — not necessarily the optimal amount for your tax situation. And if you have multiple retirement accounts (traditional IRAs, old 401(k)s), the TSP only handles its own RMD. You're responsible for satisfying RMD obligations on every other account separately.

One important detail: unlike traditional IRAs, you cannot satisfy your TSP RMD by taking a distribution from a different retirement account. Each employer-sponsored plan's RMD must come from that specific plan. Your TSP RMD comes from your TSP, your old 401(k) RMD comes from that 401(k), and your IRA RMDs can be aggregated across all your traditional IRAs but cannot substitute for plan-specific obligations.

How to Fix a Missed RMD

If you realize you've missed a required distribution — whether from the TSP, an IRA, or both — here's the correction process:

Step 1: Take the missed distribution immediately. Contact the TSP or your IRA custodian and request a distribution for at least the missed RMD amount. Don't wait until the next calendar year.

Step 2: File IRS Form 5329. This is the "Additional Taxes on Qualified Plans" form. Report the missed RMD amount on Part IX and calculate the excise tax. If you're correcting within the two-year window, you'll owe 10% instead of 25%.

Step 3: Request a penalty waiver if you have reasonable cause. The IRS can waive part or all of the penalty if you show the shortfall was due to reasonable error and you're taking reasonable steps to correct it. Attach a statement to Form 5329 explaining what happened (medical emergency, incorrect beneficiary documentation, confusion about the RMD start date). The IRS reviews the request, so a waiver is not automatic.

Step 4: Adjust withholding going forward. Once you've caught up, make sure your future distributions are set to come out automatically. The TSP's installment payment option or automatic RMD feature can prevent a repeat.

Avoiding the Penalty in the First Place

The most common reason federal retirees miss an RMD is confusion about timing — specifically, the gap between separating from federal service and when the TSP begins automatic distributions. If you retire at 62 and your RMD age is 73, there's an 11-year window where the TSP won't prompt you to take anything. It's easy to forget about the account entirely, especially if you've rolled most of your balance to an IRA.

Set a calendar reminder for the year you turn 72 (one year before RMD age for those born 1951–1959) or 74 (for those born 1960 or later). That gives you time to decide whether to take your first RMD in the initial year or delay to the April 1 deadline.

If you'd rather eliminate the RMD obligation altogether, consider converting traditional TSP balances to Roth — either through the TSP's new in-plan conversion feature (available beginning January 28, 2026) or by rolling funds to a Roth IRA. Roth balances have no lifetime RMD requirement. The conversion triggers income tax in the year of conversion, so the math only works if you convert during lower-income years before Social Security and full annuity payments begin stacking.

Our Federal Retirement Tax toolkit includes a TSP Rollover State-Tax Worksheet that maps the tax impact of conversions and rollovers across your specific income streams, so you can evaluate the RMD elimination strategy before committing.