The Thrift Savings Plan announced today that it has made some temporary changes related to required minimum distributions (RMDs).
A number of our readers have been asking if provisions of the CARES Act, the third coronavirus stimulus bill that was passed into law recently, would apply to the TSP. We now have an answer to at least some of these questions.
The TSP said that RMDs in 2020 will not be required. “You do not need to make any withdrawals from your TSP account in 2020 to satisfy an RMD, regardless of your age or employment status,” states the TSP.
This was a provision of the CARES Act. RMDs were being waived this year due to the decline in the stock market brought about the by COVID-19 coronavirus pandemic. The theory is that taking an RMD out of a retirement account and having to sell shares at lower prices would result in a greater loss than if the stock market were higher. If you opt to not take the RMD this year, you may get more bang for your buck next year, if the stock market goes back up by then, but there are no guarantees that it will of course.
Also, the TSP stated:
- We will not send any automatic RMD payments for 2020.
- If you make a withdrawal, we will withhold for federal taxes at the rate appropriate for the type of withdrawal you make, without regard to RMD rules that would otherwise apply. You can transfer or roll over to an IRA or eligible employer plan any otherwise eligible withdrawals you make. (See the TSP tax notice Important Tax Information About Payments From Your TSP Account for more information about eligible rollover distributions.)
Early Withdrawals from Retirement Plans
So what about early withdrawals from retirement plans?
The CARES Act included a provision that would allow a participant of any age to withdraw up to $100k from a retirement account without the 10% early withdrawal penalty if they either had the coronavirus or were impacted by it.
The TSP’s announcement today made no mention of this, so no guidance has been issued at this point as to whether or not this would apply to TSP participants. We will let you know if/when any additional guidance on this is provided in the future.