TSP Alerts Agencies to Pending Withdrawal Policy Change

Soon employees that make withdrawals to cover for financial hardships won’t have to wait for 6 months before making investments again, as they have had to do in the past. This policy change is expected to take effect on September 15, according to a notice sent to agencies.

The notice tells agencies to notify employees that have made withdrawals due to financial hardships of this potential change. It also recommends that the agencies to make changes to their payroll systems as necessary.

The Financial Hardship In-Service Withdrawal Report (Report 5501) will be generated through September 13, 2019. This report won’t be available after September 15, 2019. Additionally, any withdrawals made on or after that date won’t require a six-month suspension on contribution.

Starting September 15, 2019, any employee that received a financial hardship in-service withdrawal and is currently under suspension as a result will be permitted to restart TSP investments. Investing may be possible even if they have not have completed the 6 months by that date in September. The TSP should send them a notice and inform them that they can reinvest, but the participant is responsible for restarting these investments. They can do this by submitting a new “TSP Election Form.” Alternatively, this can be accomplished via the agency’s pay system.

However, the change does not affect any other forms of in-service withdrawals, such as age-based withdrawals, allowed without a tax penalty for employees at 59 years of age or more. Those that take that form have always been permitted continuous investment. The current lifetime of such a withdrawal should be ended at the same time as other changes in withdrawal.

The TSP, which is similar to a 401(k) program, offers five funds, one of which is tracking international stocks. In 2019 it should be broadened to include emerging markets. Additionally, the TSP offers funds that are referred to as ‘lifecycle’ funds, which mix investments in the basic funds in ratios including a variation with expected withdrawal times. The mixes become more conservative over time.

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