There are federal income tax rules that apply to civil service retirement benefits received by retired federal employees (including those disabled) or their survivors. The Thrift Savings Plan (TSP) provides federal employees with the same savings and tax benefits that many private employers offer their employees. This plan is similar to private sector 401(k) plans.
Per IRS Publication 721 Tax Guide to U.S. Civil Service Retirement Benefits, on page 2:
If you have a uniformed services TSP account, it may include contributions from combat pay. This pay is tax exempt and contributions attributable to that pay are tax exempt when they are distributed from the uniformed services TSP account. However, any earnings on those contributions are subject to tax when they are distributed. See Roth TSP balance
, discussed later, to get more information about Roth contributions. The statement you receive from the TSP will separately state the total amount of your distribution and the amount of your taxable distribution for the year. If you have both a civilian and a uniformed services TSP account, you should apply the rules discussed in this publication separately to each account. You can get more information from the TSP website, TSP.gov
, or the TSP Service Office.
Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.