Somatic mutations in TET2 are common in myelodysplastic syndromes (MDS), myeloproliferative, and overlap syndromes. TET2 mutant (TET2^MT) clones are also found in asymptomatic elderly individuals, a condition referred to as clonal hematopoiesis of indeterminate potential (CHIP). In various entities of TET2^MT neoplasia, we examined the phenotype in relation to the strata of TET2 hits within the clonal hierarchy. Using deep sequencing, 1781 mutations were found in 1205 of 4930 patients; 40% of mutant cases were biallelic. Hierarchical analysis revealed that of TET2^MT cases >40% were ancestral, e.g., representing 8% of MDS. Higher (earlier) TET2 lesion rank within the clonal hierarchy (greater clonal burden) was associated with impaired survival. Moreover, MDS driven by ancestral TET2^MT is likely derived from TET2^MT CHIP with a penetrance of ~1%. Following ancestral TET2 mutations, individual disease course is determined by secondary hits. Using multidimensional analyses, we demonstrate how hits following the TET2 founder defect induces phenotypic shifts toward dysplasia, myeloproliferation, or progression to AML. In summary, TET2^MT CHIP-derived MDS is a subclass of MDS that is distinct from de novo disease.