TSP - Changes to TSP Withdrawal Options

TSP - Changes to TSP Withdrawal Options

When will the changes happen?

All of the new withdrawal options will go into effect

September 15, 2019.

What’s going to change?

Options fall into the following categories:

• After you separate from service, you can take

multiple post-separation partial withdrawals.

• If you're 59½ or older and still working in federal

civilian or uniformed service, you can take up to

four in-service withdrawals each year.

• You’ll be able to choose whether your withdrawal

should come from your Roth balance, your

traditional balance, or a proportional mix of both.

• You will no longer need to make a full withdrawal

election after you turn 70½ and are separated

from federal service. (You will still need to receive

IRS required minimum distributions (RMDs).)

• If you're a separated participant, you'll be able to

take monthly, quarterly, or annual payments.

• You’ll be able stop, start, or make changes to your

installment payments at any time.

• You'll have enhanced online tools to help you make

withdrawals in the My Account section of tsp.gov.

Partial Withdrawals

Right now, you’re limited to one partial withdrawal in

your lifetime—either an age-based in-service withdrawal

 (when you’re 59½ or older) or a partial post-separation

withdrawal. Under the new policy,

• you’ll be able to take up to four age-based in-service

withdrawals per calendar year1;

• there will be no limit of the number of partial

withdrawals you can take after separating from

federal service (except that you won’t be able to

take more than one every 30 calendar days);

• you’ll be able to take partial withdrawals while

you’re receiving post-separation installment

payments; and

• having taken age-based in-service withdrawals

will not prevent you from taking post-separation

partial withdrawals.

Roth, Traditional, or Both

Currently, when you take a withdrawal, the money comes

from your traditional and Roth balances on a pro rata (proportional)

basis. For example, if 80% of your account is in your

traditional balance and 20% is in Roth, any withdrawal

you take will be 80% traditional and 20% Roth.

Under the new rules, you can still use this method, but you’ll also

have the option to take your withdrawal only from your

Roth balance or only from your traditional balance. These

options will be available for all types of withdrawals.

Withdrawal Deadline

Previously, the law required that you make a full

withdrawal election once you turned 70½ and were

separated from federal service. If you failed to do that, we

would initiate an account “abandonment” process.

The new law does away with this requirement. You will

never be required to make a full withdrawal election,

and we will no longer abandon accounts as we have in

years past.

If your account has already been abandoned, you’ll

be able to restore the account without making a full

withdrawal election. Your restored balance can remain in

the plan (subject to RMDs) with all the new withdrawal

options available.

You will still need to receive IRS required minimum

distributions (RMDs). You can satisfy the requirement

by taking a partial withdrawal or installment payments.

If you take no action or just don’t withdraw enough to

meet your RMD, we will automatically send you the

remaining RMD amount.

Installment Payments

• Monthly payments are currently the only

frequency option you have for receiving regular

post-separation installment distributions from

your account. The new rules will also allow you to

receive payments quarterly or annually.

• Right now, if you’re receiving monthly payments,

you can only change the amount of those payments

during an open season between October 1 and

December 15. When the new withdrawal options

go into effect, you’ll be able to change the amount

and frequency (monthly, quarterly, annual) of

your installment payments—and change from life expectancy

payments to a fixed dollar amount2 —at

any time throughout the year.

• Now, if you want to stop your monthly payments,

you must receive the remainder of your account in

a final withdrawal paid to you or transferred to an

IRA or other eligible plan. The new rule eliminates

that requirement, allowing you to stop and start

your payments any time.

What will be the withdrawal process under the new rules?

At the same time as we roll out the new withdrawal

options, we'll begin using enhanced online tools to make

the withdrawal process even more efficient. Instead of just

providing you with a completed paper form to send in,

our new online tools will allow you to complete at least

part of the transaction online. In many cases you'll still

need to provide notarized signatures or other materials

in paper form. But when that happens, you'll be given

only the necessary pages to complete and submit. When

we receive those pages, we'll be able to link them to the

information you've already submitted securely online and

complete your transaction. This will greatly reduce the

chance of errors that could cause delays, rejections, or—

worse—unintended withdrawals that can't be reversed.

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1 Current rules on the number of in-service hardship withdrawals will

not change.

2 This is a one-time-only change. As is currently the case, once you choose to

receive “dollar-amount” payments, you cannot switch to life-expectancy.

3

Can beneficiary participants use the new withdrawal options?

Yes, beneficiary participants, the spouses of deceased

TSP participants who've had accounts established for

them, can make all the same withdrawals as separated

TSP participants.

9We asked Congress for these new withdrawal options, so

rest assured that we’re motivated to enact them as soon

as possible. We're pleased to be able to provide the new

options beginning September 15, 2019.