Generally, as you noted, all of the money in your TSP account is taxed as ordinary income when you receive it. This is the case when neither the contributions to your traditional TSP balance nor its earnings have been included previously in your taxable income. The way that you withdraw your account balance determines when you must pay the tax.
If any of your TSP distributions came from a Roth TSP, qualified distributions from your Roth TSP aren't included in income. If you have a uniformed services TSP account that includes contributions from combat pay, the distributions attributable to those contributions are tax-exempt.
If you ask the TSP to transfer any part of the money in your account, from traditional contributions and earnings to a traditional IRA or a different qualified retirement plan, the tax on that part is deferred until you receive payments from the traditional IRA or other plan.
Review the source of your contributions and the accounts to which the distributions were transferred to see whether any of these exceptions apply. The TSP representative with whom you spoke may not have had all of the information needed.
See IRS Publication 721 for more information about civil service retirement benefits.
If, after reviewing this information, you believe your Form 1099-R is incorrect, contact the TSP for more information.
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