Retirement tax questions

If you have separated from Federal service, you should enter your distributions for the tax year exactly as reported on Form 1099-R, and no calculation on your part is required for the Federal return.

If you are referring to a New Jersey state return:

You should not filling out Part D IF you received a one-time 401(k) withdrawal. Part D is for period payments, i.e. monthly payments.

Go back to the 1099-R section.

1. Type "1099-r" in Search in the upper right
2. Select : "Jump to 1099-r:
3. Edit your 1099-R
4. Say Qualified plan (most common) on What kind of retirement plan do you have with...
5. Say NO on Any Periodic Payments?
6. Then go back to New Jersey. Those questions should be gone.

New Jersey taxable income also includes employee contributions to federal Thrift Savings Funds, 403(b), 457, SEP, or any other type of retirement plan other than 401(k) Plans, that are not includible in Federal income. Pennsylvania also taxes TSP contributions.

There is another tax challenge for New Jersey and Pennsylvania traditional TSP participants who make withdrawals as New Jersey or Pennsylvania residents. The tax challenge is that when they withdraw their traditional TSP accounts when they are retired and living in New Jersey or Pennsylvania, the TSP does not remind them which portion of their traditional TSP withdrawal consists of their contributions made via payroll deduction with after-taxed (state) salary. 

The TSP keeps a record of such contributions but does not include the information with a 1099-R (the tax document that shows the gross distribution and the taxable distribution of a traditional TSP distribution made during the year). 

If you were a New Jersey or Pennsylvania resident while employed, you would have been taxed on the contributions already but not the earnings, which would have fluctuated, as you pointed out.

Please see this article from Serving Those Who Serve for an example of this situation for a New Jersey taxpayer and how to handle withdrawals.