TSP Board modifies financial hardship withdrawal rules

Federal employees who make hardship withdrawals from their Thrift Savings Plan accounts can no longer transfer the funds to an IRA or other retirement plan, according to a new rule from the Federal Retirement Thrift Investment Board. The board scrapped the provision that allowed financially strapped employees who withdrew funds from their TSP accounts to transfer the funds into individual retirement accounts or other eligible retirement plans because of new IRS regulations, according to the final rule published Monday in the Federal Register. According to the IRS rule, money received from withdrawals for financial hardship can no longer be rolled over into other retirement vehicles. The TSP allows employees who face "extraordinary expenses" due to hardship to apply for a withdrawal of at least $1,000 from their TSP accounts. The types of expenses that meet the definition of "extraordinary expenses" include individual or family medical costs; home improvements to accommodate an injury or illness; costs associated with property loss due to a natural disaster or unusual event, such as theft; and legal expenses associated with divorce or separation. Employees cannot withdraw funds to pay alimony or child support. The new rule, which took effect Monday, also requires employees to send documentation supporting financial hardship within 45 days of their application. Employees who qualify cannot withdraw more than the amount of their request, or the amount of their own contributions and earnings, whichever is smaller. After making a financial hardship withdrawal, employees cannot contribute to their TSP accounts for six months. Employees who have filed for bankruptcy under Chapter 13 of the bankruptcy code cannot make hardship withdrawals.