This question comes up every single week in my office. A federal employee is thinking about retirement, they’ve read something scary about the SRS earnings test, and they want to know whether drawing from their TSP or receiving their FERS pension will count against the limit. The answer is no — with one exception everyone gets wrong.
The SRS earnings test is structured the same way the Social Security earnings test is. It only counts earnedincome. Pension payments and TSP withdrawals are not earned income. They’re transfers of your own savings or benefits you earned earlier.
TSP withdrawals and the SRS earnings test.
Thrift Savings Plan withdrawals are not earned income for SRS earnings-test purposes. You can withdraw $200,000 from your TSP in a single year, and the SRS earnings test will treat that as zero.
This is true whether the withdrawal is:
- A partial withdrawal of a single sum.
- A series of installment payments.
- An annuity purchased from a private insurer through the TSP.
- A RMD (required minimum distribution).
The IRS may treat these distributions as taxable income (which affects IRMAA Medicare premiums and tax brackets), but the SRS earnings test doesn’t care. It only cares whether the money represents work.
FERS pension payments and the SRS earnings test.
FERS annuity payments are also not earned income. You can have a FERS annuity of $80,000 a year plus a SRS of $20,000 a year and still receive both — the FERS annuity is a pension, not earnings.
The same logic applies to:
- Military retired pay (when not based on current active duty).
- State or local government pensions from prior employment.
- Private-sector pensions from prior employment.
- IRA distributions, whether traditional or Roth.
- Social Security benefits (with a separate offset rule).
The one exception that catches people.
The exception is this: if you return to work for the federal governmentas a reemployed annuitant, the pay you receive from that reemployment is earned income and counts toward the SRS earnings test. And separately, there is a different rule — the reemployed annuitant pay offset — that may reduce your FERS annuity itself. The two rules interact, and a reemployed annuitant can find that both their annuity and their SRS are reduced at the same time.
This is the area where I most often find retirees surprised. They assume a federal reemployment isn’t “real work” because they’re already drawing a federal annuity. It is real work, and the earnings test treats it as such.
Why this matters for TSP sequencing.
Because TSP withdrawals don’t count toward the SRS earnings test, the structural argument for starting TSP withdrawals before 62 is strong. The retiree can:
- Receive the FERS annuity.
- Receive the SRS without earnings-test interference.
- Supplement that income with TSP withdrawals if needed, without triggering the earnings test.
The retiree who instead chooses to delay TSP withdrawals until 70 and relies on a part-time job to bridge the gap will see the SRS shrink under the earnings test. The retiree who chooses the other ordering — TSP first, work optional — usually keeps more of every federal benefit on the table.
The IRMAA footnote.
The same TSP withdrawals that don’t count toward the SRS earnings test do count toward Medicare Part B and D IRMAA— the income-related monthly adjustment amount. IRMAA is based on MAGI from two years prior. So a 2024 TSP withdrawal can raise 2026 IRMAA, even though it had no effect on the SRS earnings test in 2024.
This isn’t a contradiction. Two different agencies run two different tests on two different definitions of income. The SRS earnings test ignores your TSP; IRMAA does not.