TSP Modernization Act is Now Law

The TSP Modernization Act, a bill allowing federal employees to make multiple age-based or post-separation withdrawals from the TSP, has now become law.

President Trump has signed the TSP Modernization Act into law, making a number of changes to the Thrift Savings Plan to assist federal employees.

Senator Rob Portman (R-OH), one of the original sponsors of the bill, said he was pleased to see that it had become law.

“I’m pleased that the president has signed this common-sense bill into law,” said Senator Portman. “This bipartisan measure will make the TSP more responsive to the needs of its participants, and give federal employees the retirement flexibility they deserve.”

Under current TSP rules, participants may only elect one partial age-based withdrawal after they turn 59½ or one partial post-separation withdrawal after separation from federal employment. The TSP Modernization Act would eliminate these restraints by allowing for unlimited age-based or post-separation withdrawals.

For federal employees over age 59½ who are still working, the bill will allow multiple age-based withdrawals. Employees who have left government can make multiple partial post-separation withdrawals. The bill also allows election of quarterly or annual payments, and permits periodic withdrawals to be changed at any point during the year.

The new law directs the Federal Retirement Thrift Investment Board (FRTIB), the body that oversees the TSP, to prescribe such regulations as necessary to carry out the new changes no later than two years from the date of enactment.

The TSP issued the following statement on its website about the new law:

On November 17, 2017, President Trump signed into law the TSP Modernization Act of 2017, which will provide TSP participants with more flexible withdrawal options. The law eliminates the statutory prohibition on multiple post-separation withdrawals and multiple age-based withdrawals while a participant is still working. It also removes the restriction that participants cannot take partial post-separation withdrawals if they’ve already taken an age-based in-service withdrawal. Though it has no effect on required minimum distributions mandated by the Internal Revenue Code, the law also allows separated participants who are over age 70½ to remain in the TSP, eliminating the requirement to make a withdrawal election on an entire account balance. Participants will also be able to stop monthly payments, change payment frequency, or elect to purchase an annuity while receiving monthly payments.

The Executive Director of the FRTIB has the authority to establish parameters regarding this new ability to take multiple withdrawals, and the law gives the FRTIB up to two years to make the regulatory and operational changes necessary to enact these changes.

About the Author

Ian Smith is one of the co-founders of FedSmith.com. He has over 20 years of combined experience in media and government services, having worked at two government contracting firms and an online news and web development company prior to his current role at FedSmith.