Will TSP Ever Change Their Investment Options Now That Withdrawal Changes Have Been Made? By Richard Brenner

 

After years of criticism of restrictions from TSP members, The TSP Modernization Act was passed in 2017 and was put into effect this year, allowing more freedom for TSP holders to access their savings.

Since these changes have gone into effect, those that have left federal or military service are not able to take unlimited partial withdrawals from their account, but can only do so once every 30 calendar days. They can also make installment payments and partial withdrawals at the same time. They also now have the option to receive installment payments every month, quarter, or year, which they can stop, restart, and change the regularity of payments whenever they wish to do so. Along with that, they are now able to choose to pull their payments from just their Roth, their traditional TSP account, or both.

For those that are over the age of 59 and a half and still federally employed or in the military, they are able to take up to 4 age-based in-service withdrawals from just their TSP account, Roth, or both accounts as well.

For those that take hardship withdrawals, there no longer will be a six-month penalty of not being able to contribute to their accounts.

Since the implementation of these new TSP withdrawal options, there have been a few challenges that TSP holders have encountered. Below are some:

The first challenge for some is that the withdrawal requests are now to be requested online, which can be difficult for those that are not able to get to a computer, online, or a printer. On top of that, even though these withdrawal requests need to be done online, the forms still need to be printed, signed, and sent in.

The second challenge is the notarization of signatures. The following forms need to be signed in front of a notary official for each withdrawal or change request by the TSP account holder (or spouse in some cases):

1. Withdrawal Request for Separated & Beneficiary Participants
2. Changes to Installment Payments
3. Age-Based In-Service Withdrawal Request

This definitely can be a challenge for those that are nowhere near a notary.

Now, even though new changes have been implemented to provide more flexibility for participants to access their money, the criticisms in regards to investment choices still have not been addressed or changed. Currently, there are just five basic funds. Four of these funds, the C fund, F fund, I fund, and S fund, are connected to an index. The 5th fund, the G fund, is linked into short-term treasuries, which are specifically for the TSP. The principal and interest in this fund are absolute, but the G fund can be hit when we reach the statutory debt limit.

There had been a version of the law in that would have enabled participants to invest a portion of their TSP into a third-party mutual fund through an investment ‘window,’ however that law was never enacted and TSP participants are left with the very limited investment options that have been in place for years.

Throughout the years, there have been bills that were proposed in Congress that would have the TSP offer specialized funds along with other bills that would not allow investments in current funds to fund certain activities or businesses.

However, the TSP has indicated that they are against these kinds of proposals.

 

 

 

About Richard Brenner

Richard Brenner is an independent, licensed financial professional who specializes in offering retirement solutions to federal employees.  Rich lives in Mount Laurel, NJ,  and graduated from Lafayette College with a B.A. in Economics and Business and has been assisting families with wealth preservation strategies since 2000.

Richard Brenner can be reached at;

[email protected]

609-605-0291