Thrift Savings Plan (TSP) investors have been reading news reports about changes coming to the federal government’s Thrift Savings Plan (TSP) for some time. And, as of September 15th, these changes are now in effect.
Here is a quick summary.
Withdrawals Under New TSP Rules
After leaving federal government service, a TSP investor can now make multiple post-separation partial withdrawals. And, if you are 59½ or older and still working as a federal employee or in a uniformed service, an investor can take up to four in-service withdrawals each year.
Under previous requirements, investors were limited to one partial withdrawal during a lifetime.
Now, according to the TSP:
- There are no limits on the number of partial withdrawals you can take after separating from federal service (except that you won’t be able to take more than one every 30 calendar days);
- You will be able to take partial withdrawals while you’re receiving post-separation installment payments; and
- Taking age-based in-service withdrawals will not prevent you from taking post-separation partial withdrawals.
Roth, Traditional or Mixed Withdrawals
Previously, when taking a withdrawal from the TSP, the money was removed from your traditional and Roth balances on a pro rata basis.
So, for example, if 80% of an account is in a traditional TSP account and 20% is in a Roth account, any withdrawal would be 80% traditional and 20% Roth.
Under the new rules, an investor can still use this method, but there is now the option of taking the withdrawal only from the Roth balance or only from the traditional balance. These options are available for all types of withdrawals.
What If Your Account Was “Abandoned”?
Previously, a TSP investor was required to make a full withdrawal decision after turning 70½ and was separated from federal service. If that was not done, the account would be considered “abandoned” and the legal process would be initiated to implement this action.
Now, if an account has already been abandoned, a former TSP investor will be able to restore the account without making a full withdrawal election. The restored balance can remain in the plan (which would still be subject to required minimum distributions). The new withdrawal options would also available.
If an investor has been separated from federal service, taking monthly, quarterly or annual payments are options. Under previous rules, monthly payments were the only option available for receiving regular post-separation installments distribution.
New Rules Apply to Beneficiary Investors
Beneficiary participants, spouses of deceased TSP participants who have had an account established for them, can make the same withdrawals as TSP participants who have separated from federal service.
The changes that have been made to the TSP are significant. Investors wanting to take maximum advantage of these changes may want to consult their financial advisors in deciding the best options available for an individual.