The Federal Retirement Thrift Investment Board, which administers the Thrift Savings Plan (TSP), has approved two major measures for investment and withdrawals.
One measure will create an investment window through which TSP investors will be able to choose from a wide range of mutual funds to invest into.
The second measure will allow TSP investors to make multiple withdrawals after age 59 1/2; while still working without being hit with a tax penalty, and also after they are separated from federal employment.
Both of these changes to the Thrift Savings Plan are major issues, and it will take a year or more to be implemented, if at all. The investment window plan will additionally require Congress to pass legislation approving the change.
Why is FRTIB Making These TSP Investment and Withdrawal Changes?
The Federal Retirement Thrift Investment Board has been studying these changes and their impact for some time now. The idea is to modernize the TSP so that plan investors don’t move their funds out to an IRA with more flexibility as soon as they leave federal employment. Currently, 41 percent of TSP investors who leave federal employment move their funds elsewhere within a year.
The idea of allowing investments into funds other than the five TSP funds is no doubt an attractive feature that will help stem the outflow. But the multiple withdrawals feature will be especially beneficial in helping retain TSP investments after federal retirement or separation.
Currently, federal employees above age 59 1/2; and those separated are allowed to make one partial withdrawal arrangement, and the second one after that must cover the entire remaining balance. If the TSP allowed multiple withdrawals without penalties, large numbers of federal retirees would leave their TSP savings untouched and benefit from the low fees.