Many of you are aware that on November 17, 2017 the TSP Modernization Act (PL 115-84) was passed. Today’s blog will unpack the September 15, 2019 changes.
Multiple age-based in-service and post-separation partial withdrawals
Current law states that only one age-based withdrawal may be taken at age 59.5, and if you took an in-service withdrawal, you are not eligible to take a partial withdrawal.
In the coming months, the following regulations will change for federal employees.
- Allowed to take up to four age-based in-service withdrawals per calendar year
In the coming months, the following regulations will change for federal retirees.
- Up to one partial withdrawal every 30 days
- Ability to take partial withdrawals while receiving post-separation installment payments
Having taken an age-based in-service withdrawal will no longer prevent you from taking post-separation partial withdrawals.
Choose whether TSP withdrawals come from Roth, Traditional, or mix of both
Previous TSP rules state if you have a Traditional and Roth account, then any withdrawals made will follow pro-rata rules. Meaning, pre-tax and post-tax money will be withdrawn proportionally from both retirement accounts. For example, if 70% of your account is in your Traditional TSP and 30% of your account is in your Roth TSP, any withdrawal made will come out as 70% Traditional and 30% Roth.
TSP modernization Act will allow you to choose whether your withdrawal comes from your Roth, Traditional, or both accounts. These options will be available for any type of withdrawal made.
No longer be required to make a full withdrawal election from TSP after you turn 70.5 and are separated
The IRS will still require you to make Required Minimum Distributions (RMDs). You may take a partial withdrawal or receive payments to meet the RMD requirement. If no action is made or a withdraw fails to meet your RMD, TSP will automatically send you the remaining RMD amount.
If your account has already been abandoned, you will have the option to recover your TSP without having to make a full withdrawal.
Choose monthly, quarterly, or annual payments
Under current rules, TSP only allows you to make post-separation monthly payments. Any changes that are made must be done during open season which falls between October 1 through December 15. The change in monthly payment takes effect in January.
Under the TSP Modernization Act, if you are separated, you will be able to choose a monthly, quarterly, or annual payment. You will have the ability to stop, start, or make changes to your payments at any time.
As we well know, federal benefit changes are constantly being made. It’s important to know what all of your options are so that you can better prepare for retirement.