You know being a Federal Benefits Specialist keeps me inside the federal loop with TSP quite a bit. But so many of your spouses, friends and family are not TSP participants. Their retirement savings often rest at 401Ks, and these 401Ks have nearly always been easy to access funds after age 59 ½, multiple times if the participants wanted and needed to.
Not so with the former TSP rules, just one time after 59 ½, what was/is called an Age Based in Service Withdrawal. You got one shot at doing it right and creating an income plan with the retirement savings while working.
This was restrictive, to say the least, since so many want to design their retirement income plan before they retire, not at retirement or just after.
What’s Changing Under the New TSP Rules?
But finally the changes are here!
Starting Sep 15, 2019, the TSP will become, shall we say, more typical and normal, allowing similar flexibility as any other 401K. Now you can take up to four withdrawals a year while working once you reach age 59 ½. Way more flexibility!
Previously the TSP only allowed 2 withdrawals when separated (retired) and the 2nd withdrawal would be the final one where you had to withdraw your balance. Now you can take multiple post separation withdrawals, up to one every 30 days. You can even take partial withdrawals while receiving monthly installment payments for income.
This is important because you may be relying on the monthly checks for income, but still need money for unexpected car repairs, trips, medical expenses, home repairs, the grand kids, etc. It’s just way more intuitive and practical now.
After 70 ½ you had to take a full withdrawal election, thereby exiting the TSP. Not any more. You will only have to take RMDs since you have attained 70 ½, as the federal government wants (and needs) their taxes, along with any applicable state taxes. But you can now keep money at the TSP as long and as old as you like.
You’ll now be able to choose if you want to withdraw just Roth money, traditional money, or both. Before this change, the TSP withdrew equal percentages from both sides, making it very inflexible. This change can be useful when designing a tax plan for families, and we are ever so grateful for this new facet being made available.
Before these changes you could only alter your monthly payments annually, between the declared open season of Oct 1st thru Dec 15th. Now you can start, stop, or make changes to your installment payments at any time throughout the year.
If you’re separated or retired, you’ll be able to take monthly, quarterly, or annual payments. It was just a monthly option that was available previously. Some of our client families love the quarterly and annual provisions, especially for insurance and property taxes.
Any accounts that were “abandoned” due to not taking out the balance at age 70 ½ will be restored with all the same privileges as any other account. It is just what we have always expected should be in place, and now it is. No more few brittle options for TSP.
Congratulations to anyone who has a TSP account. Happy planning!
Charles Dzama is the author of FedWise, a free monthly newsletter focused on topics of importance and interests to federal employees. He has been assisting federal agencies and federal employees for well over a decade in fully understanding their benefits. Email Charles to request retirement training at your agency.