Now that the new withdrawal rules that were passed under the TSP Modernization Act have gone into effect this week, the TSP has issued guidance on utilizing the new withdrawal options.
The information below is taken from four forms on the TSP’s Agency Rep Bulletins page. Links to the individual forms are included in each section.
Federal employees or retirees who have questions about their personal accounts or situation should contact the TSP, their human resources office, and/or their personal financial advisor for assistance as necessary.
Withdrawal Requests for Separated and Beneficiary Participants
The following information is taken from TSP Bulletin 19-6:
Changes to Post-Separation/Beneficiary Participant Withdrawals
The FRTIB has made the following changes related to post-separation/beneficiary participant withdrawals:
- Participants can now receive installment payments monthly, quarterly, or annually, and can stop or change these payments at any time.
- Participants can take multiple partial withdrawals (even while receiving installment payments) as long as there are at least 30 calendar days between each request.
- Having taken an age-based in-service withdrawal will not prevent participants from taking post-separation partial withdrawals.
- Participants are able to choose whether their payments come from their Roth balance only, their traditional balance only, or pro rata from both.
- Participants are no longer required to make a full withdrawal election once they’ve turned 70½ and have separated from federal service. However, they still have to receive IRS required minimum distributions (RMDs). If a participant has not received sufficient payments to satisfy the RMD, the TSP will automatically send the needed amount to that participant as long as his or her mailing address is up to date.
Requesting a Post-Separation/Beneficiary Participant Withdrawal
Participants should use the online tool on the TSP website to initiate a partial or total account withdrawal request.
To access the tool, participants must log into My Account and click on “Withdrawals and Changes to Installment Payments,” then click on “Withdrawal Request for Separated and Beneficiary Participants.” This online tool will guide the participant through the request by prompting the participant to answer questions.
Based on those answers, the online tool will generate Form TSP-99 (WEB), Withdrawal Request for Separated and Beneficiary Participants, which is a summary of the request with the participant’s provided information.
Depending on the circumstances, the request may be completed entirely online. If signatures or additional information is required, the participant will need to print the form, gather the necessary signatures, have the form notarized, and then send it to the TSP.
New Options and Processes for Changes to Installment Payments
The following is taken from TSP Bulletin 19-7:
Changes to Installment Payments
The FRTIB has made the following changes related to installment payments:
- Participants can take monthly, quarterly, or annual installment payments and can change that frequency at any time.
- Participants can change the dollar amount of their installment payments at any time. Note: If a participant is receiving life-expectancy payments and changes the frequency or amount of those payments, the participant will be automatically changing from life-expectancy to dollar amount payments. The participant will not be able to change back to payments based on life expectancy.
- Participants are able to choose whether their payments come from their Roth balance or traditional balance first, or pro rata from both. If a participant chooses to receive installment payments as “Roth first” or “Traditional first,” the installment payments will be taken first from the source chosen (Roth or traditional). However, if that source has insufficient funds to make payments, those payments will automatically switch to being made from the other source. Payments will not stop until the participant elects to stop them or there is insufficient funds in the entire participant account. If a participant chooses the “pro rata” option, payments will be taken from both types in the proportion of the participant’s entire account.
- Participants are able to take partial withdrawals while they are receiving installment payments.
Tax Implications for Making Changes to Installment Payments
Payments expected to last 10 years or more and payments based on life expectancy have different tax withholding requirements from those expected to last less than 10 years, and they are not eligible to be transferred.
If a participant’s change request puts payments in a different duration category, the TSP will automatically change the withholding to the default for the new duration or to any allowable option chosen by the participant.
If a participant is currently transferring all or part of the installment payments to an IRA or eligible employer plan and the change request makes the payments ineligible for transfers (by changing their expected duration to 10 years or more), the participant’s transfers will stop.
Participants should be aware of these tax implications before they make changes to their installment payments. The TSP tax notice Tax Information for TSP Participants Receiving Installment Payments provides additional information.
Requesting Changes to Installment Payments
Participants should use the online tool on the TSP website to make changes to their installment payments.
To access the tool, participants must log into My Account and click on “Withdrawals and Changes to Installment Payments,” then click on “Changes to Installment Payments.”
This online tool will guide the participant through the request by prompting the participant to answer questions. Based on those answers, the online tool will generate Form TSP-95 (WEB), Changes to Installment Payments, which is a summary of the request with the participant’s provided information.
Depending on the circumstances, the request may be completed entirely online. If signatures or additional information is required, the participant will need to print the form, gather the necessary signatures, have the form notarized, and then send it to the TSP. Note: The pages included in Form TSP-95 (WEB) will be variable, depending on what the TSP requires in a given case. If a participant alters any of the pre-printed information on the TSP-95 (WEB) form, the form will not be processed.
New Rules and Processes for Age-Based In-Service Withdrawals
The following is taken from TSP Bulletin 19-8.
Changes to Age-Based In-Service Withdrawals
The FRTIB has made the following changes related to age-based in-service withdrawals:
- Participants can take up to four age-based in-service withdrawals per calendar year, as long as there are at least 30 calendar days between each request.
- Participants are able to choose whether their payments come from their Roth balance only, their traditional balance only, or pro rata from both.
- Taking an age-based in-service withdrawal will not prevent participants from taking post-separation partial withdrawals once they separate from federal service.
Requesting an Age-Based In-Service Withdrawal
Participants should use the online tool on the TSP website to initiate an age-based in-service withdrawal request.
To access the tool, participants must log into My Account and click on “Withdrawals and Changes to Installment Payments,” then click on “Age-Based In-Service ‘59½’ Withdrawal.”
This online tool will guide the participant through the request by prompting the participant to answer questions. Based on those answers, the online tool will generate Form TSP-75 (WEB), Age-Based In-Service “59½” Withdrawal Request, which is a summary of the request with the participant’s provided information.
Depending on the circumstances, the request may be completed entirely online. If signatures or additional information is required, the participant will need to print the form, gather the necessary signatures, have the form notarized, and then send it to the TSP. Note: The pages included in Form TSP-75 (WEB) will be variable, depending on what the TSP requires in a given case. If a participant alters any of the pre-printed information on the TSP-75 (WEB) form, the form will not be processed.
New Rules and Processes for Financial Hardship In-Service Withdrawals
The following is taken from TSP Bulletin 19-9.
Changes to Financial Hardship In-Service Withdrawals
The FRTIB has made the following changes related to financial hardship in-service withdrawals:
- The rule requiring employee contributions to be suspended for six months when a participant takes a financial hardship withdrawal is eliminated as of September 15, 2019. The following will result from this rule change:
- Participants who took a financial hardship withdrawal during the six months prior to September 15, 2019, will receive a TSP notice alerting them that they can resume contributions on that date. Restarting TSP contributions is the participant’s responsibility. Participants and agencies/services will still need to follow current procedures to resume contributions by having the participant access their employer pay system, or by completing Form TSP-1/TSP-U-1, Election Form.
- Beginning September 15, 2019, taking a financial hardship withdrawal will have no effect on a participant’s contributions.
- Report 5501 (Financial Hardship In-Service Withdrawal Report) is now obsolete.
- Participants are able to choose whether their financial hardship withdrawals come from their Roth balance only, their traditional balance only, or pro rata from both.
Requesting a Financial Hardship In-Service Withdrawal
Participants should use the online tool on the TSP website to initiate a financial hardship in-service withdrawal request.
To access the tool, participants must log into My Account and click on “Withdrawals and Changes to Installment Payments,” then click on “Financial Hardship In-Service Withdrawal.”
This online tool will guide the participant through the request by prompting the participant to answer questions. Based on those answers, the online tool will generate Form TSP-76 (WEB), Financial Hardship In-Service Withdrawal Request, which is a summary of the request with the participant’s provided information.
Depending on the circumstances, the request may be completed entirely online. If signatures or additional information is required, the participant will need to print the form, gather the necessary signatures, have the form notarized, and then send it to the TSP. Note: The pages included in Form TSP-76 (WEB) will be variable, depending on what the TSP requires in a given case. If a participant alters any of the pre-printed information on the TSP-76 (WEB) form, the form will not be processed.
