There are soon to be more withdrawal options coming for military members and government workers, in regards to their retirement funds.
Taking effect this coming September, the TSP will soon get rid of some of the more aggravating restrictions it formerly had for investors.
The changes have been underway for the last two years, originally from a piece of legislation that was drafted back in 2017. With over 5.9 million investors contributing more than 591 billion dollars in the TSP, these new modifications are going to affect a lot of people.
In the past, 36 percent of people eligible for enrollment in the TSP opted to take their money out of the state-sponsored retirement fund in favor of a private company’s savings plan, claiming the lack of options on how they can manage their TSP as the main reason why.
Michael Kennedy, director of financial consulting company Korn/Ferry International, said of the new changes “They’ve been very limited in the past and I think [the new changes are] going to be very beneficial.”
Previously, people enrolled in the TSP had minimal options to receive their funds if they were to leave the military or their government jobs before three years of steady employment. Those options were to purchase an annuity, a payout of a lump sum, or monthly payments. But it came with a catch, as any withdrawals were only allowed to be taken in equal parts from the former employees pre-tax and post-tax amounts of their Roth IRA. Couple with that, the former employee was limited to one choice of partial withdrawals, with any secondary withdrawal being the final one allowed, applied to the entire rest of the fund. Most people were left with very little wiggle room.
Starting on the 15th of September though, people leaving their positions with the government will have way more options. Mainly, they’ll be able to make withdrawals from the account once a month, once a quarter or once a year, depending on what you need. This is up from the rigid rules prior. Additionally, money won’t have to pull money equally from the two funds, giving the policyholder more freedom to manage their accounts.
Previously, still working employees over the age of 59 and a half years old were only permitted to make an age-based withdrawal only once without incurring a penalty on their taxes. Now, those employees can make age-based withdrawals up to four times per year without any taxes levied.
The Thrift Savings Plan Board of Directors would like for these new changes to encourage employees to stick with the TSP. They hope that the freedom these changes allow, along with the TSP’s low fees and charges, would make it the best available option for current government workers.
Enrollees will be informed of these new developments to the TSP through a newsletter and the website. A greater focus on the ease and low overhead of a website will also be stressed, although there will be traditional paperwork that could be filled out as well. It is hoped that by educating investors on all their options, the new TSP will roll out without many hiccups.
This may just be the beginning. There are even more changes on the way, including targeting funds in 5-year increments over the previous 10-year plan, raising the automatic investment percentage for new hires to 5 percent (from the prior 3 percent), and extra authentication steps to get into online accounts. This is expected to go into effect at some point during this year, with the other two updates planned for the summer and fall of 2020.