The Breakdown of New TSP Withdrawals
On September 15th, those in the Thrift Savings Plan program had access to new withdrawal and change options–and they were taking advantage of it. According to the board that runs the TSP, within approximately 24 hours of the newly implemented changes, there were at least 9,300 users that started or completed a new withdrawal request online.
According to the director of TSP participant services, the day after the change went live on a Sunday, the participant support centers for TSP were quite occupied with answering questions.
The Federal Retirement Investment Board, who governs the TSP, are unsure this early in time on whether the participants are acting on demands that have been pent up, or if they are just wanting to see what the new options are like.
These changes came from the heels of the TSP Modernization Act of 2017, which allowed the FRTIB to change things based on many feedback from account holders. The Act had a deadline of November 2019 to add these new changes to the system.
Check out what some of these new changes are below:
- Installment payments can now be selected to be taken every month, every four months, or once a year.
- It is now allowed to take partial withdrawals post-separation as many times as needed.
- Installment payments and partial withdrawals can be taken at the same time.
- Participants can now choose what account to pull money from, whether it is their traditional accounts, or Roth, or a mix of both.
- For those that are still working and are at least 59 and a half years old can take up to 4 age-based, in-service withdrawals per year.
These changes are much-welcomed as the old regulations were restrictive for account holders. Many that were post-separation were forced to move their funds to another retirement account, such as an IRA, to have flexibility. Now with these new rules in the system, they won’t have to do this just for flexibility’s sake.
Unfortunately, because the old regulations were very limited and complex, many TSP account holders may not know what exactly has changed for them, specifically.
Check below to see what these new withdrawal options can do for those that are TSP account holders.
Since the new changes have been made, TSP participants are allowed to make one withdrawal monthly (every 30 days). Those are that are post-service no longer have restrictions on how many partial withdrawals can be made from their TSP.
For those that are still working for federal service and are at least 59 and a half, they are now able to make four partial withdrawals every year. Keep in mind that the 30 day time period will also apply to these withdrawals.
TSP account holders can select the option to take their payments every month, every four months, or once every year. They can also adjust the amount of the payments, stop, or start them whenever they need to.
Also, there is no longer a mandatory decision that participants have to make at age 70 and a half with what they wish to do with their balance. The TSP will pay the difference through required minimum distributions for those that do not know what they want to do with their account.
During this process of RMDs, the participants will be notified by the TSP that they have not selected an option for a complete withdrawal of their balance. They will also be notified that they need to take the RMDs. The amount will be calculated annually by the IRS as to what needs to be the required minimum amount.
Before the new withdrawal options, if a participant took a hardship withdrawal, they were not able to make contributions to their TSP for six months. This is no longer the case with the new rules.
About 63,000 account holders will be welcomed with the news that they will be able to continue their TSP contributions.
It is also now possible to take a partial withdrawal while receiving installed payments from the TSP. This can come in handy if there are unexpected expenses that may come up, and participants need access to their money quickly.
In the past, withdrawals took equal distributions from both the traditional accounts and Roth. Now, it is an option to specifically select one or the other, or exactly how much should be taken out from both accounts.
If no option is selected, the TSP will withdraw equal amounts from both accounts for you.
Another significant change is that these withdrawal forms can be accessed online. However, once completed, account holders will need to print these forms, sign them, and then send them off to the TSP by mail or fax.
The FRTIB is looking into whether they can remove the requirement for notarized signatures in some cases. They also are seeing if all requests can be made electronically. The board is looking into acquiring a recordkeeping service, which can further advance the TSP platform by automating many operations such as withdrawal requests.
If you wish to know more about these changes, check out TSP’s official website or even their Official Youtube Channel for more information.
