With the New Rules in Place, Will TSP Now Expand Investment Options?

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By on October 8, 2019 in Pay & Benefits with 0 Comments
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Finally, after many years of disgruntled TSP participants facing severe limitations to accessing their retirement funds, the TSP Modernization Act went into effect September 15, 2019. If you are not yet familiar with the changes, below is a summary:

After separation of service:

  • You can take multiple partial withdrawals, not to exceed one every 30 days
  • You can take partial withdrawals and installment payments simultaneously
  • You have the option to take monthly, quarterly and annual installment payments
  • You can start, stop, or make changes to your installment payments at any time
  • You have the option to choose the source of withdrawal payments, including traditional, Roth or both

Before separation and age 59 ½ or older:

  • You can take up to four age-based in-service withdrawals 
  • You have the option to choose the source of withdrawal payments, including traditional, Roth or both

Before separation hardship withdrawals:

  • There is no longer a 6-month suspension of contributions if a participant takes a hardship withdrawal.

Obstacles

With just two weeks in, I have heard a few obstacles from TSP participants and wanted to share them.

Obstacle #1: Complete withdrawal request online:

TSP Participants need to go online to request a partial withdrawal and make changes to installment payments. While that may sound simple to most, it can pose problems for those without access to a computer and a printer. Although you are told to go online to process the request, you still need to print and sign the forms.

Obstacle #2: Notarization of Signature(s)

The forms needed to submit a withdrawal request are:

  • TSP-75, Age Bases In-Service Withdrawal Request
  • TSP-95, Changes to Installment Payments
  • TSP-99, Withdrawal Request for Separated and Beneficiary Participants

These forms require TSP participant and if applicable spouse, to sign the form in front of a notary every time that you want to do a withdrawal or change request. This may create a problem if you are not close to an institution with a notary, or if you or your spouse is home-bound. Regardless, it is just a hassle! 

What is the Likelihood of TSP Expanding Investment Options?

While the TSP Modernization Act has expanded withdrawal options, they have not addressed the dissatisfaction participants have among investment options. TSP has only 5 basic funds with four of them (F fund, C fund, S fund and I fund) linked to an index. The G fund is invested in short-term treasuries, specially issued to the TSP. Principal and interest is guaranteed by the U.S. Government. In addition, the G fund can be affected when the statutory debt limit is reached.

Earlier law allowed for an investment window, that would allow investors to put some of their TSP in an outside mutual fund. This would include the opportunity to have funds in other sectors of the economy such as healthcare, energy, real estate, emerging markets, high yield fixed income and others.

There have been several bills introduced in Congress that would necessitate TSP to offer certain kinds of specialized funds, or to restrict investments in current funds so that investors do not sponsor certain activities. Unfortunately, TSP has signaled that they would oppose such bills.

Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC. Advisory Services offered through J.W. Cole Advisors (JWCA). Franklin Planning and JWC/JWCA are unaffiliated entities. Securities are not FDIC insured or guaranteed and may lose value. Investments are not guaranteed and you can lose money. This presentation is for educational purposes only and is not an offer to buy or sell an investment. Neither Franklin Planning and JWC/JWCA are tax or legal advisors and this information should not be considered tax or legal advice. Consult with a tax and/or legal advisor for such issues.

© 2019 Carol Schmidlin. All rights reserved. This article may not be reproduced without express written consent from Carol Schmidlin.

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About the Author

Carol Schmidlin, Certified Financial Fiduciary®, MRFC® is the President of Franklin Planning and has been advising clients on how to grow and preserve their wealth for 25 years. In addition to her financial planning practice, she is the founder of FedSavvy® Educational Solutions, which provides Financial and Retirement Literacy Programs for Federal Employees. She is passionate about helping families with all phases of Wealth Management and is a member of Ed Slott’s Master Elite IRA Advisor Group. Her practice maintains a home office in Sewell, NJ along with a satellite office in Washington, DC. Carol can be reached at (856) 401-1101.

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