TSP Alerts Agencies to Pending Withdrawal Policy Change

In the notice that the TSP has sent to agencies, employees who make withdrawals to cover for financial hardships won’t need to wait for six months anymore before making investments again. The policy change is expected to take effect on September 15.

The notice informs the agencies to notify employees who have made withdrawals for financial hardships of this anticipated change. It also urges agencies to make necessary changes to their payroll systems so as to accommodate the changes.

Through September 13, 2019, the Financial Hardship In-Service Withdrawal Report  (Report 5501) will be generated. The report will become obsolete come September 15, 2019, and any withdrawals made on or after that day won’t need a six-month contribution suspension.

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From September 15, 2019, any employee that received a financial hardship in-service withdrawal and is under suspension will restart TSP investments. Investing will be possible even if they will not have completed the six months by September. The TSP will send them a notice and alert them that they can start to reinvest, but the participant is solely responsible for restarting investments. They will do this by submitting a new TSP Election form or through the agency’s pay system.

This change, however, doesn’t affect other forms of in-service withdrawals like the age-based withdrawals allowed without a tax penalty for employees aged 59 years or older. The people that take that form have always been allowed continuous investment. The current lifetime of such a withdrawal’s lifetime will be ended at the same time among other changes in withdrawal.

The TSP, the 401(k)-style program offers five funds, and one of them is tracking international stocks. It will be broadened in 2019 to include emerging markets. Also, the TSP offers funds referred to as ‘lifecycle.’ These funds mix investments in the basic funds in ratios that have a variation with the expected withdrawal times. Over time, the mixes become more conservative.