According to Don Fletcher, Coronavirus Aid, Relief, and Economic Security Act, CARES Act has been just signed by the federal government to allow flexibility in in-service withdrawals from federal employees’ contribution plans like Thrift Savings Plan or TSP. The Federal Retirement Thrift Investment Board is working on measures that would allow them to use this plan for TSP participants.
As per Don Fletcher, FRTIB sent a short email to all subscribers of the TSP Plan News on March 27th informing subscribers that they will soon update all about the changes in the retirement plan that have been introduced by the CARES Act.
From the email, it looks like there will be several amendments in the act that will inevitably impact workers’ retirement plans.
Elimination of Required Minimum Distributions (RMDs)
One amendment that has done in the act is for the benefit of TSP participants who have already retired and are old enough to take required minimum distributions (RMDs). The CARES Act has eliminated RMDs for the running year. That means people who were forced to withdraw money that had lost its selling value due to coronavirus outbreak would no longer be forced to do so.
Don Fletcher said This change is beneficial, especially for the TSP participants because, according to the Thrift Savings Plan, the withdrawal needs to be proportional among the different funds. For example, if a worker had 50% of his or her account in the C Fund and 50% in the G Fund, then 1/2 of each withdrawal would come from the falling C Fund.
Withdrawals options from Retirement Plans
Another amendment allows participants who are under 59 ½ can take up to $100,000 out of their plan sponsored by the company and IRAs without any need to pay a 10% early withdrawal penalty (usually applied to such withdrawals).
In addition to these changes, present employees who are TSP participants can take a hardship withdrawal and repay over three years. According to current rules, such type of repayment option is not available for existing workers. If he or she is not able to repay within the three years, then the income would become taxable.
Is it good or bad?
We shouldn’t touch the savings that we have done for retirement for anything other than the retirement itself. When in dire need of money, look for your other options first:
· Emergency fund;
· Other taxable savings;
· Controlling current expense; and
· Try to take advantage of options given by money lenders and credit card companies during this coronavirus crisis.
If you find no way and end up extracting money from your TSP account during this time of crisis, then try to take some harsh steps and repay the money once the situation comes back to an adequate level. Re-payment will not be counted against the annual contribution limit.
In simple words, Honey, don’t hit your TSP account unless it’s the last option for you.
