The CARES Act was signed into law on March 27, 2020. It contained a provision that allows an early withdrawal from a retirement plan without the usual 10% penalty.
It has been unknown if or when the Thrift Savings Plan would institute this provision to allow TSP participants to utilize it for financial hardships resulting from the coronavirus.
But now we have an answer. The TSP has announced this week new temporary loan and withdrawal options offered under the CARES Act for federal employees who meet certain criteria.
The loan options outlined by the TSP will be available no later than June 22 and the withdrawal option will be available in the middle of July.
To qualify, the TSP says that you, your spouse or dependent must have tested positive for the COVID-19 coronavirus and that you are “experiencing adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).”
In the interim, the TSP also highlighted other withdrawal options currently available to assist federal employees impacted by the coronavirus.
The announcement from the TSP with all of the details about these new financial aid options is included below.
Update on CARES Act temporary loan and withdrawal options — (May 14, 2020)
The CARES Act allows us to offer temporary loan and withdrawal options to TSP participants affected by COVID-19. Today we are announcing that the loan options described below will be available no later than June 22, 2020, and that the withdrawal option described here will be available in mid-July 2020. Both the loan and withdrawal options are available to you only if you can certify that you meet one or more of the following criteria:
- You have been diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention.
- Your spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) has been diagnosed with such virus or disease by such a test.
- You are experiencing adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).
Increased maximum loan amount
The maximum loan amount is increased from $50,000 to $100,000, and the portion of your available balance you can borrow is raised from 50% to 100%. The deadline for applying for a loan with this increased maximum will be in September 2020. We will announce the exact cutoff date soon.
Temporary suspension of loan payments
You may suspend your obligation to make payments on your TSP loan or loans for 12 months, which will also extend the term of your loan by 12 months. This applies to existing loans and loans taken in the remainder of 2020. We will make a new form available for you to request this suspension. You have until December 31, 2020, to have your payments suspended.
CARES Act Withdrawal
You may make a one-time withdrawal of up to $100,000 from a civilian or uniformed services account. For those still in federal service, the usual requirements that you be at least 59 ½ years old or certify that you meet specific financial hardship criteria are waived. Though you may request that we withhold money from your withdrawal for federal income tax, we will not automatically do that. This withdrawal will be eligible for the favorable tax treatment described here, with all of the same options and restrictions. The deadline for applying for this withdrawal will be in December 2020. We will announce the exact cutoff date soon.