The Thrift Savings Plan (TSP) Modernization Act will go into effect September 15, 2019. Some key benefits include greater withdrawal flexibility and more efficient online tools.
Under the current rules, you are limited to only one age-based in-service withdrawal (once you’re 59 ½ or older) or post-separation partial withdrawal in a lifetime. Then a full withdrawal election is required. Under the new policy, once you separate from service you can take multiple post-separation partial withdrawals (limited to one withdrawal every 30 calendar days). If you’re 59 ½ or older and still working in federal civil or uniformed service, you will be able to take up to four age-based in-service withdrawals per calendar year.
Currently, all withdrawals from the TSP are done on a pro-rata basis and include both traditional and Roth funds. Under the new rules you can specify which account you would like to make the withdrawal from. This is a great financial planning benefit as it has been shown that tax-efficient withdrawal strategies can extend the longevity of your portfolio.
Under the current rules, regular installment payments can only be received monthly and any requests to change monthly installment amounts can only be made once a year during open season. Under the new rules you will be able to alter your installment payments and change the frequency (monthly, quarterly, or annually) whenever you need. You will also be able to start and stop your payments at any time.
Currently, once you separate and are 70 1/2 or older, a full withdrawal election is required, or your account becomes abandoned. Under the new act, required minimum distributions (RMDs) at age 70 ½ and after will automatically be taken care of for you if you don’t withdraw enough during the year. Additionally, if your account has already been abandoned you will be able to restore the account without making a full withdrawal election and leave the restored balance in the plan (subject to RMDs).
Additionally, you will now be able to make many withdrawal requests using online tools (no paper forms needed). However, in some cases you may still need to provide notarized signatures or other materials in paper form.
These changes will take place on September 15, 2019. From now until September 6 you will have the same withdrawal options that are currently available. Between September 7 and September 14 no withdrawal requests will be accepted due to the scheduled transition period. On September 15 you will be able to choose from the new withdrawal options in addition to the ones currently available.
The bottom line is that it looks like many new and beneficial options will be available to TSP participants. These withdrawal options will also be available to beneficiary participants and spouses of the deceased TSP participants. If you are planning a withdrawal from your TSP you may want to wait until September 15 or later to take advantage of the greater ease and flexibility of withdrawal.
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