New loan and withdrawal options enacted through the CARES Act will become available in June and July, respectively, while officials have noted other options for participants to access their money are already in place.
Officials with the federal government’s 401(k)-style retirement savings program announced last week that new loan and withdrawal options enabled by the passage of the Coronavirus Aid, Relief and Economic Security Act will be available to federal employees and retirees this summer.
The CARES Act, signed by President Trump in March, offers a number of avenues by which participants in 401(k) and equivalent programs can seek relief. The Thrift Savings Plan has already implemented some of those provisions, including the suspension of required minimum distributions and waiving or delaying tax penalties associated with a variety of existing withdrawals and loans, provided a participant has experienced negative consequences of the coronavirus pandemic.
On May 14, the TSP announced that new temporary withdrawal and loan programs authorized by the CARES Act would be implemented this summer.
Under the new loan program, the maximum loan amount available to participants will increase from $50,000 to $100,000, and the portion of a participant’s available balance that can be borrowed will increase from 50% to 100%. Additionally, participants may elect to suspend payments on a TSP loan for up to 12 months, although it also will extend the life of the loan by 12 months.
“This applies to existing loans and loans taken in the remainder of 2020,” officials wrote. “We will make a new form available for you to request this suspension. You have until December 31, 2020, to have your payments suspended.”
The new loan options will be available by June 22, officials said.
Beginning in mid-July, the TSP will offer what is called a CARES Act Withdrawal, which allows qualifying participants to make a one-time withdrawal of up to $100,000 from their accounts. For current federal workers, the typical requirement that a participant be at least 59 1/2 years old or cite a specific financial hardship, as well as the 10% tax penalty, would be waived.
In order to qualify for these loan and withdrawal options, participants or their spouses must have been diagnosed with COVID-19 or SARS-CoV 2, or participants must be experiencing “adverse financial consequences” as a result of being quarantined, furloughed or laid off due to the virus. Those who cannot work because of child care or other dependent care obligations, and business owners who have had to close or reduce their hours as a result of the pandemic also would qualify for these new transactions.