Options for Withdrawing Funds from the Thrift Savings Plan: Option 2 – TSP Annuity

This is the second of four FEDZONE columns discussing TSP withdrawal options that are available to all separated Thrift Savings Plan (TSP) participants. In these columns, a separated TSP participant means a civilian federal employee or a member of the uniformed services who has separated from that employment.

This column explains TSP life annuities, another withdrawal option for separated TSP participants. It needs to be emphasized that a TSP life annuity purchased with TSP account funds is not the basic annuity that a retired CSRS or FERS employee receives starting immediately after the employee retires. Nor is the TSP life annuity the military retirement pay that retired members of the uniformed services receive when they retire from the uniform services.

What is a TSP life annuity?

A TSP life annuity is not like a TSP account,  a traditional IRA or a Roth IRA, certificate of deposit, a brokerage or a bank account. When a separated TSP participant  purchases a TSP life annuity, the participant gives up control of the TSP money used to purchase the annuity. In exchange, the participant receives lifetime monthly payments from the TSP annuity provider. But as will be explained, there are some disadvantages associated with a TSP life annuity.

Amount of the TSP participant’s life annuity payments

The factors that affect the amount of a participant’s monthly annuity payments include the following:

• The amount of the participant’s TSP account that is used to purchase the TSP life annuity.
• The participant’s age when the annuity is purchased (and the age of the separated participant spouse’s age in case a joint annuity is purchased).
• The annuity options the participant chooses, and
• The “interest rate index” when the annuity is purchased.

Those separated TSP participants and beneficiary TSP participants who are interested in purchasing a TSP life annuity are encouraged to go onto the TSP web site at www.tsp.gov and use the “TSP annuity calculator” to estimate their monthly TSP annuity payments. They will have to input certain information in order to obtain an estimate of their monthly payments. The exact amount of their monthly payments cannot be determined until the date of the TSP annuity purchase.

Purchasing a TSP Annuity

The process for purchasing a TSP annuity using money from a separated TSP annuitant or from a beneficiary TSP annuitant’s TSP account is the same as for requesting TSP installment payments or requesting a single (partial) withdrawal. Namely, the TSP participant must log into the “My Account” section at https://www.tsp.gov and click “Withdrawals and Changes to Installment Payments.” The online tool is then used for requesting any type of TSP withdrawals.

The minimum amount with which to purchase a TSP annuity is $3,500. This minimum applies separately to each balance – the traditional TSP and Roth TSP accounts used to purchase the annuity. The $3,500 minimum TSP account balance comes into play if a participant has both traditional TSP and Roth TSP balances and the participant chooses not to have the money for the annuity purchase come solely from one TSP account or the other. When that happens, the TSP will take the money from the participant’s two TSP account balances “pro-rata,” meaning in the proportion they make up the total account balance.

If a separated TSP participant chooses to have TSP funds for an annuity purchase taken from both the traditional TSP account balance and from the Roth TSP account balance, then the following rules apply:

• If using one’s total account balance to purchase the annuity and one of the balances is at least $3,500 but the other balance is not, then the TSP will purchase the annuity with the balance that is at least $3,500 and pay the other balance directly to the TSP participant as a cash payment.
• If the TSP participant is using a portion of his or her account to purchase a TSP annuity and either of the TSP accounts has less than $3,500 then the TSP will reject the TSP participant’s TSP annuity request.
• If the result of the “pro-rata” calculation results in either the Roth TSP or the traditional TSP portion being less than $3,500, the TSP will proceed as if the participant does not have the minimum TSP account balance to proceed. The following example illustrates:

Example 1. TSP participant Sheldon’s account balance is $80,000 In his traditional TSP account and $20,000 in his Roth TSP account. Sheldon requests a TSP annuity of $10,000. The TSP will calculate $80,000/$100,000, or 80 percent, of $10,000 ($8,000) coming from his traditional TSP account and $20,000/$100,000, or 20 percent, of $10,000 ($2,000) coming from the Roth TSP. Since the $2,000 coming from the Roth TSP is less than $3,500, the TSP will reject Sheldon’s TSP annuity request of $10,000.

TSP life annuity options 

Through the TSP’s annuity provider, the TSP offers the following types of annuity options:

• Single life annuity with level or increasing payments.
• Joint life annuity with the separated TSP participant’s spouse with level or increasing payments.
• Joint life annuity with someone other than the separated TSP participant’s spouse with level payments.

These different types of TSP annuities are  below, followed by a description and discussion of several additional annuity features that a separated TSP participant can choose. Note that the more features a TSP participant selects for his TSP life annuity, the less monthly payments the TSP annuity will provide. Only one type of annuity can be purchased per each withdrawal request.

Single life and joint life TSP annuities 

An annuity that provides monthly payments only to the separated TSP participant as long as he or she lives is a single life annuity. Certain single life annuity options; namely, (1) cash refund and (2) ten-year certain, provide for a beneficiary who may receive payments after the death of the TSP participant. But as will be shown below, the more features added to the single life annuity, such as increasing payments, cash refund and ten-year certain, the less monthly payment to the participant.

An annuity that provides monthly payments to the separated TSP participant and the person with whom the participant chooses to share the participant’s annuity (the participant’s joint annuitant) are alive, is called a joint life annuity.

If the TSP participant chooses the cash refund options, a named beneficiary will receive the balance in the annuity after the participant and joint annuitant have both died. In most cases, the joint annuitant is the participant’s spouse. When either the participant or the joint annuitant dies first, monthly payments will be made to the survivor for his or her lifetime. The amount of the payment while the participant and the joint annuitant are alive and the amount of the payment to the survivor depends on whether the participant chooses a 100 percent or a 50 percent survivor annuity. A participant who chooses a joint life annuity has to provide proof of the joint annuitant’s age.

If  the TSP participant chooses an annuity that provides for a joint annuitant other than the participant’s spouse, the joint annuitant must be either a former spouse or someone with an insurable interest in the participant. This means that the individual is financially dependent on the participant and could reasonably expect to derive financial benefit from the participant’s continued life. Blood relatives or adopted relatives (but not relatives by marriage) who are closer than first cousins are presumed to have an insurable interest in the participant.

Two types of joint annuities are available:

• 100 percent survivor annuity. The amount of the monthly annuity payment to the survivor (either the TSP participant or the joint annuitant) is the same as the annuity payment while both TSP participant and joint annuitant are alive. However, the amount of the monthly payments that the TSP participant receives while the joint annuitant is alive is generally less than it would be compared to choosing a 50 percent survivor benefit.
• 50 percent survivor annuity. The amount of the monthly annuity to the surviving annuitant -whether the surviving annuitant is the TSP participant or the joint annuitant is decreased to 50 percent of the annuity payment while the TSP participant and joint annuitant are both alive.

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If a joint annuitant other than a spouse is named and the joint annuitant is more than 10 years younger than the TSP participant, then the TSP annuitant must choose a joint life annuity with the 50 percent survivor benefit. The only exception is for a former spouse to whom all or a portion of the TSP participant’s account is payable under a retirement benefits court order.

Level and Increasing Payment Annuities

Once a TSP annuitant decides on a single life or a joint life annuity, the TSP participant  can decide whether he or she wants to receive level payments or increasing payments. Choosing level payments results in the amount of monthly annuity payments remaining the same from year to year. With a single life annuity, the TSP participant  receives the same monthly payment for as long as he or she lives. With a joint life annuity, a TSP participant receives the same monthly payment for as long as the TSP participant and joint annuitant are alive. The monthly payment to the survivor annuitant (the TSP participant or the joint annuitant depending on who dies first) will depend on whether the TSP participant chooses a 100 percent survivor annuity or a 50 percent survivor annuity, but it will remain at the same monthly annuity amount for the life of the survivor annuitant.

Increasing payments is the amount of the monthly annuity that will increase by 2 percent on the anniversary date of the first payment. When TSP payments start, they are smaller than they would have been if the TSP participant selected level payments. However, the payments will increase every year. Increasing payments can be combined with either the single life annuity or the joint life annuity with spouse. Increasing payments cannot be chosen when the joint annuitant is not the TSP participant’s spouse.

Additional Annuity Features That Allow for Beneficiaries

Two additional annuity features will provide payments to named beneficiaries. These features are the “cash refund” feature and the “ten-year certain” feature which are discussed here. Note that when either of these annuity features is chosen by the TSP participant, the monthly annuity payments will be less than they would have been had the TSP participant chosen a TSP annuity without either of these features.

• Cash refund. If the TSP participant and if applicable, the joint annuitant, die before the amount used to purchase the TSP annuity has been paid out, any remaining amount in the annuity will be paid to the TSP participant’s designated beneficiary in a lump sum payment. For example, if the TSP participant purchased a joint annuity for $300,000 and both the TSP participant and the joint annuitant die after receiving a total of $200,000 in annuity payments, the designated beneficiary will receive a lump sum payment of $100,000. This feature can be combined with either a single life or a joint life annuity and with level or increasing payments.
• Ten-year certain. If the TSP participant dies before receiving payments for a 10-year period, the payments will continue to a designated beneficiary for the rest of the 10-year period. If the TSP participant lives beyond the 10-year period, the TSP annuitant will continue to receive a monthly annuity payment, but no payments will be made to a beneficiary when the TSP participant dies. This feature can be combined with a single life annuity or with either level or increasing payments. It cannot be combined with a joint life annuity.

The table below summarizes the TSP life annuity options and features.

* A married FERS or uniformed services participant must obtain his or her spouse’s waiver of the spouse’s TSP survivor annuity benefit if an option is chosen other than joint life with spouse, with level payments and 50% survivor annuity.

** Available if joint annuitant is not more than 10 years younger than the participant.

To help better understand the various features and options available with TSP life annuities, an  example is presented. An employee, John, age 59, retired from federal service on March 31, 2025, and in June 2025 elected to use $250,000 from his traditional TSP account to purchase a TSP life annuity. Going to the TSP Web site, John accesses the TSP annuity calculator https://www.tsp.gov/calculators/tsp-annuity-calculator/#panel-1 in order to get an estimate of his monthly TSP annuity income for two types of annuities, namely: (1) Single life (level payment with no cash refund), (level payment with cash refund), (level payment with 10-year certain), (increasing payment of 2.0 percent and no cash refund), (increasing payment of 2.0 percent with cash refund) and (increasing payment of 2.0 percent and 10-year certain); and (2) Joint life annuity with his wife Carol, age 57; (level payment, 100% survivor benefit, no cash refund). (level payment 50% survivor benefit, no cash refund); (level payment, 100% survivor benefit with cash refund), (level payment 50% survivor benefit with cash refund), (increasing payment of 2.0 percent with 100% survivor benefit and no cash refund), (increasing payment of 2.0 percent with 50% survivor benefit with no cash refund), (increasing payment of 2.0 percent with 100% survivor benefit with cash refund), and (increasing payment of 2.0 percent with 50% survivor benefit with cash refund). The monthly payment amounts for John aged 59 through age 77 following the annuity purchase date are presented in Chart I and Chart II:

Chart I (Single Life Annuity of $250,000 for John, age 59) 

 *The monthly annuity amount displayed here is an estimate based on the current (July 2025) TSP annuity interest rate of 4.825%.

Chart II (Joint Life Annuity of $250,000 for John, age 59 and John’s wife Carol, age 57) 

*The monthly annuity amount displayed here is an estimate based on the current(July 2025) TSP annuity interest rate of 4.825%.   

This case study is for illustrative purposes only. Individual cases will vary. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Prior to making any investment decision, you should consult with your financial advisor about your individual situation.   

Important reminders about TSP annuities

1. TSP annuity purchases are irrevocable; changes cannot be made once a TSP annuity is purchased.

2. Using either the ThriftLine Service Center options on https://www.tsp.gov the tools available in My Account will help a TSP participant calculate and model potential TSP annuities.

3. TSP participants are advised to compare the different types of TSP annuities and benefit amounts to determine which TSP annuity best fits a TSP participant’s final goals and needs.

4. Interest rates change monthly, and timing may be a factor in determining a TSP participant’s benefit amount.

    Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert

A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.

He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.

Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street – Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.