Why Certain Suggestions Did Not Make It Into the New TSP Changes
The FRTIB agency, which manages the TSP (Thrift Savings Plan), has released a new “final rule” within the Federal Register as a response to some people in regards to Thrift Savings Plan withdrawal choices.
Due to the TSP Modernization Act, the “final rule” was issued as there are some changes that will occur to the TSP in the near future. This policy will permit some new options to withdraw from the plan while terminating the regulation that a recipient must be 70 and a half years of age (or over) and no longer in federal service to completely withdraw from their Thrift Savings Plan account.
In the post, the agency stated that there was a proposal by a few people to be able to convert accounts into Roth within the Thrift Savings Plan. It is known that there are plenty of 401(k)s that let the account owners change their 401(k) into a Roth account. A taxable event occurs with this transition. However, in some cases, it can save an individual a lot if they pay the tax immediately.
However, the FRTIB, state that they have gone over this possibility in the past, but they will not put it through as an option because there was an overall conclusion that the difficulties that may come up regarding tax matter,s along with the high possibilities of unrecoverable monetary dangers was too much of risk of it not being a beneficial option. Also reconsidering this matter was not something that was permitted within the range of the TSP Modernization Act.
Others brought up the possibility of solely withdrawing funds from a tax-exempt balance, but this is not allowed by the Internal Revenue Code, said the FRTIB.
There was another question that proposed that a TSP account holder be permitted to make certain withdrawals, but the agency stated that they reviewed the matter and will not be adding it due to the complexity in updating withdrawal election forms and the associated programming to permit fund-specific withdrawals.
Another suggestion was to permit withdrawals after the end of federal service to not be subjected to taxes, no matter the age of the account holder. However, this matter is governed by the IRC.
One person wanted post-separation withdrawals to be exempt from the 10% additional early distribution tax, regardless of the age of the participant. The FRTIB noted that this is governed by the Internal Revenue Code (IRC).
There was also some frustration on one person’s part in regards to the upcoming changes and that it does not allow an account holder to have the option of making a single withdrawal from their balance and Roth that was not prorated. Unfortunately, the FRTIB determined that they were not able to do so as it would be unachievable administratively.
