Changes are coming, but they’ll take awhile to implement.
I’ve been receiving quite a few questions lately about what is happening with implementation of the changes to Thrift Savings Plan withdrawal options as a result of the TSP Modernization Act signed into law last November. The short answer is it’s going to take awhile.
According to a fact sheet issued by the TSP, nothing changes until new regulations are put in place, so for now you are limited to the existing withdrawal options. You can choose monthly payments—as low as $25 per month—and leave your balance in the TSP until the new options are available. The TSP will make a broad announcement when the new options become available.
When will that happen? Kim Weaver, director of external affairs at the Federal Retirement Thrift Investment Board, which runs the TSP, said, “the law gives the TSP two years from when it was signed to implement the changes, so everything will be done by November of 2019.” The changes will require revisions to recordkeeping, forms, publications, the TSP website, and training.
So what exactly is changing? Here’s a quick recap:
- Participants will be able to specify how much of their withdrawal should come from the traditional TSP and how much should come from Roth funds. (Withdrawals currently come out on a prorated basis from both sources.)
- The law eliminates the prohibition on multiple post-separation withdrawals and multiple age-based withdrawals while a participant is still working. It also removes the restriction that participants cannot take partial post-separation withdrawals if they’ve already taken an age-based in-service withdrawal.
- Though it has no effect on required minimum distributions mandated by tax laws, the law allows separated participants who are over age 70½ to remain in the TSP, eliminating the requirement to make a withdrawal election on an entire account balance.
- Participants also will be able to stop monthly payments, change payment frequency, or choose to purchase an annuity while receiving monthly payments.
- There will not be a change in the prorated distribution from each TSP fund in which you have investments. If you are a uniformed services member with tax-exempt contributions in your traditional balance, your withdrawal will contain a proportional amount of tax-exempt contributions as well.
If you’re thinking through your current withdrawal options, here are a few tips to remember before it comes time to begin taking your money out:
- To read more about your options, visit the TSP website, where you will find videos, pamphlets, tax information and calculators to assist you in making the best withdrawal choice for your retirement needs.
- Before you submit a request that you are not sure is going to provide you with the type of payment you need to supplement your retirement income, you can double-check your decision by contacting the TSP’s Thriftline at 877-968-3778.
- It’s helpful to sign up for online access to your TSP account. You’ll need online access to use the TSP’s Wizard to complete your withdrawal request. The Wizard is an online application assistant that will help you complete your form electronically and help you avoid making errors.
- When finished, the forms will need to be printed, notarized and faxed or mailed to the TSP. If you complete the forms by hand with an ink pen, you will increase your chances of a delay in processing because the forms are read by an optical reader. The TSP offers a short YouTube video on the proper way to complete the withdrawal forms.
- Additional resources are available in the TSP Media Gallery and TSP4Gov YouTube channel that walk you through withdrawal options, investment choices and more.
- The TSP will notify you when you can begin withdrawals after your separation. Your agency must first notify the TSP that you are no longer on its payroll. This may take about a month. If the forms are accepted, the processing should only take about two weeks.
- You can move other qualified retirement savings into the TSP using forms TSP 60 or TSP 60R (for qualified Roth distributions from an employer plan).
- Learn more about the TSP’s Lifecycle funds if you want a simple, low-maintenance way of investing money in your account. The L Funds make the investing process easy because you don’t have to figure out how to diversify your account or how and when to rebalance.
Before the new withdrawal options kick in, it’s a good idea to spend some time thinking about your investment strategy and how withdrawals will fit into your retirement plans.