For federal employees in Maryland, the Thrift Savings Plan (TSP) is one of the most valuable benefits available for retirement. It represents years of disciplined saving, matching contributions, and strategic investment growth. But as you approach retirement in 2025 and beyond, how you withdraw from your TSP can make all the difference in ensuring a steady, tax-efficient income that lasts throughout your retirement years. At United Benefits, we specialize in helping federal retirees design customized withdrawal strategies to meet their unique financial goals and minimize tax burdens.
Understanding TSP Withdrawal Options and the 2025 Rule Changes
In recent years, the Thrift Savings Plan has undergone notable updates designed to give retirees more flexibility when managing withdrawals. The most significant change came with the TSP Modernization Act of 2017, which expanded withdrawal options. As of 2025, participants can look forward to even more streamlined and flexible access rules. Federal retirees can:
- Make multiple partial withdrawals during retirement rather than just one lifetime withdrawal.
- Choose to take withdrawals from Roth or traditional balances separately, allowing for greater tax control.
- Stop, start, or change installment payments at any time without penalties.
- Transfer funds from the TSP directly to an IRA or other qualified plan to better align with broader retirement strategies.
This flexibility gives Maryland retirees greater freedom to manage income streams, but it also adds complexity. A thoughtful plan for how and when to withdraw ensures you’re not leaving money on the table through unnecessary taxation.
The Tax Impact of TSP Withdrawals
Your TSP savings likely include a combination of pre-tax traditional contributions and after-tax Roth contributions. The tax impact depends on which portion you withdraw and when. Traditional withdrawals are fully taxable as income, which can affect your overall tax bracket, Medicare premiums, and even the taxation of Social Security benefits.
Roth withdrawals, on the other hand, are tax-free if you’ve met the age and holding requirements. Strategically mixing these sources can help keep your taxable income in lower brackets — a crucial part of a tax-efficient withdrawal plan.
For example, retirees in Maryland may take advantage of specific state-level incentives. Maryland exempts up to $36,200 (as of the 2024 tax year) of income from eligible retirement plans for those age 65 and older. This makes it especially important to time withdrawals and coordinate them with other income sources to optimize tax outcomes.
Creating a Tax-Efficient Withdrawal Strategy
Here are several strategies federal retirees should consider to make the most of the new TSP withdrawal flexibility and Maryland’s tax environment in 2025:
1. Use a “Bucket Strategy” for Income Needs
Divide your TSP funds into separate buckets based on time horizon and purpose. For example, one bucket for immediate short-term needs (cash and short-term bonds), one for medium-term growth, and another for long-term investments. Drawing income from short-term buckets reduces the need to sell investments during market downturns, allowing your long-term investments to continue growing.
2. Balance TSP, Social Security, and Other Income Sources
Coordinating your TSP withdrawals with Social Security benefits is key to minimizing taxes. Delaying Social Security while using selective TSP withdrawals can help you fill income gaps and lower lifelong tax liability. This strategy allows your Social Security benefits to increase by approximately 8% per year of delay up to age 70, while you draw from lower-tax income sources early on (source: Social Security Administration).
3. Manage Required Minimum Distributions (RMDs)
Starting in 2023, the SECURE 2.0 Act raised the age for Required Minimum Distributions to 73, and it will gradually increase to 75 by 2033. That means by 2025, many retirees will have additional years to manage pre-RMD withdrawals strategically. Taking voluntary withdrawals before RMD age may reduce future tax burdens and create more predictable income levels (source: SECURE 2.0 Act).
4. Consider Partial Roth Conversions
With markets fluctuating and tax rates likely to change in the coming decade, partial Roth conversions can be an effective way to move funds from your traditional TSP or rollover IRA to a Roth account. You’ll pay taxes on the conversion now, but it allows for tax-free withdrawals later. Spreading conversions over several years can keep you in lower tax brackets while fortifying your future tax-free income sources.
5. Coordinate With Maryland’s Retirement Tax Changes
In addition to federal tax planning, Maryland’s Retirement Tax Elimination Act is gradually phasing in broader retirement income tax exemptions. Understanding how federal and state laws interact ensures you maximize available benefits while maintaining compliance with evolving rules (source: Maryland Comptroller’s Office).
Why Professional Guidance Matters
The TSP’s simplicity during your career can make it seem easy to manage after retirement—but withdrawal strategy is both art and science. The right strategy balances cash flow, tax mitigation, and long-term investment growth. Every decision—from which fund to sell to which account to draw from first—can have lasting financial implications.
At United Benefits, we work exclusively with federal employees and understand both the structure of TSP plans and the unique retirement benefits framework under FERS and CSRS. Our clients in Maryland benefit from personalized plans that align their TSP withdrawals with pensions, Social Security, and other retirement savings vehicles to ensure a sustainable income stream for decades.
How United Benefits Can Help
When you partner with United Benefits Retirement Solutions, you gain access to federal benefit specialists who will:
- Review your current TSP allocation and withdrawal readiness.
- Develop customized tax-efficient withdrawal schedules.
- Coordinate with your federal pension and Social Security for integrated income planning.
- Identify opportunities for Roth conversions and IRA rollovers that align with your goals.
We go beyond numbers to help you understand how federal policy changes affect your retirement future. With 2025 bringing new opportunities for flexible withdrawals, ongoing guidance ensures that you can adapt your plan to changing tax rates, market conditions, and personal needs.
Plan Your 2025 TSP Withdrawal Strategy
As a Maryland retiree, you’ve spent years building your TSP balance. Now it’s time to put that savings to work strategically. By leveraging the new TSP withdrawal rules and working with experienced advisors, you can create a retirement income plan that’s flexible, tax-efficient, and designed for long-term security.
If you’re ready to explore your personalized TSP withdrawal strategy, contact United Benefits today at 866-558-2121 or visit us in person at 3295 County Road 47, Florence, AL 35630. Our experts are ready to help you turn your TSP into a dependable income stream that enhances your Maryland retirement lifestyle.
Learn more about our retirement planning solutions and federal benefits expertise at https://unitedbenefits.com/.