Impact of the Coronavirus Relief Bill on TSP Sponsored by:Michael Sesler

The Coronavirus Relief Bill has been newly introduced into law and is expected to impact the Thrift Savings Plan (TSP) and influence other retirement savings plans like 401(k)s for both current federal employees and retired employees. 

This bill waives off the “required minimum distributions” for retirees by April 1, 2020, when the employees turn age 72. This required minimum distribution, or RMD, is the percentage of the account that differs from person to person and depends on age.

The new law summary by the senator’s states that this law will provide help to individuals who were forced to withdraw funds from their retirement savings due to economic crises faced by the nation and the entire world due to the COVID-19 outbreak. In the case of retirees, the declining stock market could force them to withdraw their savings at a loss even if they want to leave the money in as an investment.

For currently employed federal employees, the new law has removed the 10% early withdrawal penalty on withdrawing before age 59 ½ for money withdrawals of up to $100,000 if a person is exposed to the virus or is infected by it. According to the law summary, a person diagnosed with COVID-19, a person whose spouse had been diagnosed with COVID-19, anyone who faces financial crises, has been furloughed, released from services, received reduced work hours, is unable to work due to lack of child care, or experienced closed or reduced working hours due to business closure are all eligible. 

The taxable income on such required minimum distributions would be applicable after three years if he or she cannot make payments after three years. The taxpayer may re-contribute the funds within three years.

Additionally, the new provisions offer flexibility to take loans from some of the retirement plans for coronavirus-related relief by increasing the loan limit from $50,000 to $100,000. Earlier, an individual had to repay the loan with a 10% penalty.

Both the IRS and the TSP are expected to issue new guidance on the new provisions. No more information on when this would come into effect has been given so far. 

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