As per Dennis Snoozy, in September, there was a sense of excitement surrounding TSP participants as they discovered new withdrawal options. In the first weekend alone, nearly 10,000 people took advantage of the new opportunities, and the contact centers were incredibly busy with further requests. After announcing the changes, the agency worked hard to provide the infrastructure that this sort of demand required, and it seemed to be a success.
Dennis Snoozy said, according to one financial planner, the traditional withdrawal options and rules were not only restrictive but also confusing and complicated. In many cases, they had negative consequences for participants. As a result, the agency responsible for the TSP responded, and we now have the following changes:
• Unlimited partial withdrawals (post-separation).
• Annual, quarterly, and monthly installment options.
• Ability to select a withdrawal payment source (Roth, traditional, or both).
• Simultaneous installment and partial withdrawals.
• Removal of contribution suspensions after a hardship withdrawal.
• As many as four in-service withdrawals (older than 59-and-a-half).
As well as helping those who are retired or who have left federal service, these new rules will also help the older workers still going. Rather than moving funds across to an IRA (individual retirement account) in the hunt for flexibility, these changes will convince some to keep their funds in the TSP.
According to Dennis Snoozy, how have the changes been received? Unfortunately, the negative reputation that the previously complicated system garnered has led to many participants ignoring or not understanding their new options. They know about the changes and know that it helps them but have no idea how it affects them when it comes to distribution.
Don’t worry, we’ll have all the answers you’re likely to need today. In this guide, we’re going to talk about the new options in more detail, what happens to outstanding loan balances, and more. Without further ado, let’s get into it!
New TSP Withdrawal Options – The Basics by Dennis Snoozy
We know that it’s challenging to get your head around all the rules, so allow us to break it down. Firstly, there’s an option to make a withdrawal every 30 days for ALL participants. For those who have now departed from federal service, the 30-day requirement for partial withdrawals is the only limitation to which you need to pay attention.
Additionally, participants over the age of 59-and-a-half who are still in service have further good news. In any calendar year, you may take four partial withdrawals. However, please bear in mind that the agency doesn’t want participants to take all four of their withdrawals within three months. There’s still a 30-day limit.
Elsewhere, there’s an option for annual, quarterly, and monthly withdrawals. What’s more, it’s possible to stop the withdrawals, restart them, and change the payment amount too.
According to Dennis Snoozy, what happens when you reach 70-and-a-half? Well, the dreaded choice about balance seems to be over. If you haven’t made up your mind about what to do with the funds, the TSP will use RMDs (Required Minimum Distributions) to pay the difference of your account. As you may know, this was one of the biggest problems for TSP holders, and one reason employees decided to leave it. It seemed absurd that people would be forced into a serious portfolio and financial decision just because they reached a certain age.
With these changes, those who haven’t made the full withdrawal election will get a reminder from the TSP. Of course, the Internal Revenue Code already determines and governs the required minimum distribution reminders.
Outstanding Loan Balance – Retire or Leaving Government
If there’s an outstanding loan balance, but you want a TSP withdrawal after leaving service in some capacity, the new rules provide two options.
Firstly, the unpaid balance can remain, and this will go down as a taxable distribution. Secondly, you can pay for the loan. In some cases, the situation may lend itself to another solution, and some have tried to take the taxable amount and roll it over into an eligible employer plan or IRA. If this is achieved within 60 days, you should avoid penalties and taxes.
Either way, you MUST pay the loan or declare the unpaid balance before any withdrawal.
Partial Withdrawals – Are They Necessary? by Dennis Snoozy
After seeing the adjustments, you might be wondering whether partial withdrawals are entirely necessary when taking money quarterly or monthly. It’s not necessary, but it does provide flexibility to those who want and need it. Sometimes, a sudden car breakdown or damage to the home can lead to unexpected bills, and this flexibility will come in handy.
For those heading into retirement, especially, there’s a sense of the unknown in that we don’t know what we’ll spend on a monthly or yearly basis.
Hardship Withdrawals and Contributing
Thankfully, the new rules have also put an end to the six-month contribution suspension that once came with hardship withdrawals. With the implementation of these changes, it’s thought that over 60,000 participants were told they could contribute again despite their recent hardship withdrawal.
Making Withdrawal Changes
The days of lengthy forms and paperwork are over, and the FRTIB has introduced a “smart” tool to help all participants online. Although some cases will have complications, most withdrawal changes will have an online form, which is then printed and mailed (some will need notarization or a signature).
In the future, the FRTIB is expected to make the whole process a digital one. With the acquisition of a record-keeping service, it’s believed the need for a signature will be negated, and an online portal will deal with all requests.
TSP and Roth Equal Distributions
Finally, the new rules suggest that participants can withdraw from their Roth and traditional balances; they also choose the precise amount they wish to withdraw from each TSP account. When no specific account is chosen, TSP will take from the two accounts equally. Unfortunately, it’s not possible to choose to withdraw from specific funds according to Dennis Snoozy.
Summary
There we have it, everything you need to know about TSP withdrawal changes. To learn more, visit the TSP resources and check out their informational YouTube channel!
