Plans to Loosen Thrift Savings Plan Withdrawals

Officials have announced how they plan to provide additional flexibility to Thrift Savings Plan participants. The 2017 TSP Modernization Act allows federal employees and retirees to make multiple age-based withdrawals from their TSP accounts and remain eligible for partial withdrawals after leaving government. Further, those who have left government would be able to make multiple partial post-separation withdrawals.

Tanner Nohe, project manager supervisor at the Federal Retirement Thrift Investment Board said employees of the agency have been working on implementation since the law was signed last November. They plan to finish implementation by September 2019.

Currently, participants in TSP are allowed one partial withdrawal in their lifetime—either in-service at age 59 ½ or one after leaving federal service. After that, if a participant wishes to withdrawal money, they must make a full withdrawal, set up monthly payments, take an annuity, or take a lump sum.

However, once the new rules are in place, a participant will be able to make post-separation withdrawals as often as once every 30 days without triggering a full withdrawal. Additionally, in-service age-based withdrawals will be possible up to 4x per year.

Nohe said, “With the change to one withdrawal every 30 days, that’s just a processing rule. It’s to prevent mistakes or duplication.”

The new law also lays the groundwork to provide participants greater flexibility in changing the amount and frequency of monthly installment payments. Before this Act, a former federal employee could only receive payments from their account monthly, and changes to the sum of those payments could only be made during Open Season between October-December. On the other hand, under the upcoming changes, a participant can elect to stop and restart installment payments anytime. Retirees can also make partial post-separation withdrawals while receiving regular payments.

Before the final provisions of the new law go into effect, TSP will cease its practice of “account abandonment” as early as August of this year. Under current TSP and IRS rules, when a participant reaches age 70 ½, they must arrange for a full withdrawal and make a required minimum distribution to take out of their account each year. If that’s not done, TSP moves all their holdings into the G-fund—government securities that accrue at a statutorily mandated interest rate—and contacts the participant to inform them of the change.

Kim Weaver, an agency spokesperson, said that activity usually prompts the participant to contact the agency, at which point they set up how they wish to receive payments and the money is reinvested in other portfolios as they wish.

Under the upcoming change, a full withdrawal election is no longer required. Instead of abandoning an account, the agency will send a check for the minimum withdrawal payment required by law. Additionally, participants will be able to select whether the required payments come from their standard or Roth account, or some combination of the two.