The FRTIB (Federal Retirement Thrift Investment Board) hopes that the new withdrawal policies that were set into place mid-Septemeber will help with keeping more participants in the program when they separate due to retirement or another career. A majority of financial professionals say that the Thrift Savings Plan (TSP) is the greatest 401(k) program with its 5 percent employer match and low admin fees.
Though it has excellent benefits for participants, many current and former federal and military personnel tend to leave the plan for a third party retirement savings plans such as IRAs and 401(k)s when they are separated from their government jobs. Some investors make this switch to have more options in investing in particular markets that the TSP funds do not offer.
However, the primary motive that people say why they are or were switching to other plans is because the withdrawal policies for TSP have been quite restrictive and mainly had stayed the same since its creation over three decades ago–at least until September 15th, when new rules were set into place. The new changes made should lower the number of participants leaving once they leave their jobs.
It still too soon to read on what exact effect the new, flexible policies on withdrawals will have on separated federal employees. Still, the news and information about these new policies have definitely created interest from a lot of TSP’s participants. Currently, there are about 5,800,000 account holders, which also comprises of nearly 39,400 accounts that are worth over a million dollars. The investors did a majority of these million-dollar accounts by focusing their funds and holding in the C & S funds for over ten to twenty years or more.
These new policies were set into place to maintain more participants in the Thrift Savings plan once they leave their federal or military positions. Or to even keep their accounts open with the minimum amount of $250 (if they still do wish to depart from the plan). That way, if they wish, they still have an account that they can go back to. Unfortunately, those who completely close their TSP accounts are not able to open up another TSP account. Many tend to have regrets leaving the program due to other accounts and options, costing them a lot of money in fees and additional charges.
Here are the new withdrawal rules that were put in to allow more flexibility for account holders to access their money:
- For those that are no longer employed by the federal government, they are allowed to make multiple post-separation partial withdrawals as long as they are least 30 days apart.
- For those that are still active in civil or military service and at least the age of 59.5, they will be able to make four age-based in-service withdrawals annually.
- Participants are now allowed to select to withdraw money from their traditional TSP balance, Roth, or a proportional amount from both accounts.
- It is no longer a requirement to make a full withdrawal once the participant is 70.5 years of age and no longer working their federal job. However, they will need to take RMDs (required minimum distributions) as directed by the Internal Revenue Service.
- Those that are separated can select when to make installment payments on a monthly, quarterly, or yearly basis.
- Participants can stop, restart, or request changes to their installment payments whenever they wish to do so.