The Thrift Savings Plan (TSP) made an announcement introducing some temporary changes in context with the Required Minimum Distributions (RMDs). So many people have been continually asking about the provisions of the CARES Act, wondering if the third coronavirus stimulus bill passed by the government will apply to TSP or not. In this article, we will answer some of the unanswered questions that have been bothersome.
The TSP announced that RMDs in 2020 would not be mandatory and mentioned that an individual doesn’t need to withdraw from his or her TSP account in 2020 to satisfy an RMD irrespective of his or her age employment status.
This was a feature of the CARES Act. Due to the dropping stock market, RMDs were getting waived off this year as the COVID-19 coronavirus pandemic clobbered the economy. The logic for this is that the withdrawal of an RMD out of a retirement account and selling shares at lower prices would bring more losses than the situations if the stock market were higher. If an individual does not take RMD this year, he may get more profit for his decision next year, if the stock market can return stronger by then. Though there are no guarantees, it will go up, of course.
The TSP also mentioned:
- No automated MD payments will be sent for 2020.
- In case of any withdrawal, the TSP will withhold for federal taxes at an appropriate rate depending on the type of withdrawal an individual makes, irrespective of any RMD rules that would otherwise apply. An individual can transfer or switch to an IRA or any other employer plan withdrawals you make.
The CARES Act has introduced a provision that allows participants of any age to withdraw up to $100k from a retirement account with no early withdrawal penalty fee (if they are impacted by the coronavirus or exposed to it), but still, no mention of this specifically relating to TSP participants.
