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New Changes to the Thrift Savings Plan Coming Your Way

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While many private-sector workers build their nest eggs through 401(k) plans, federal employees and members of the uniformed services have their own retirement savings and investment plan. This is called the Thrift Savings Plan (TSP).

With more than 5 million participants and close to $500 billion in assets, the TSP is recognized as the largest defined-contribution retirement plan in the world.

This fall, TSP plan participants will see significant changes to their withdrawal options.

Many participants have been asking for expanded options. But it took the TSP Modernization Act, which Congress passed and the president signed into law in November 2017, to make them a reality.

Starting November 15, 2019, after two years of planning, the Federal Retirement Thrift Investment Board (FRTIB), the agency that administers the TSP, will offer new options.

These new additions and changes are designed to give plan participants and plan retirees more choices for withdrawing their investments.

Partial Withdrawal Options

Partial Withdrawals – Participants who have reached age 59.5 are now allowed to take up to four age-based withdrawals per year. Currently, they are limited to one partial withdrawal in their lifetime—either an age-based in-service withdrawal (at 59.5 or older) or a partial post-separation withdrawal.

Partial Withdrawals when Separated – The new policy does not limit the number of partial withdrawals that can be taken after separating from federal service (except that only one can be taken every 30 days). And taking age-based in-service withdrawals does not preclude taking post-separation partial withdrawals.

Installment Payments – Currently the only frequency for receiving regular post-separation installment distributions is monthly. The new rules allow for payments to be taken monthly, quarterly, or annually.

Participants will have the flexibility to change the amount and frequency of installment payments at any time. They can also stop and restart payments at any time. And taking installment payments does not preclude a participant from taking partial withdrawals.

Account Withdrawal Options

Currently there is a strict ratio for withdrawals between your traditional and Roth TSP account balances.

For example, say 75% of your money is in a traditional TSP balance and the remaining 25% is in a Roth balance. Then a withdrawal would have to be 75% from the traditional balance and 25% from the Roth.

Account withdrawal options expand in November when participants can choose to use this method or take the entire withdrawal only from the traditional balance or only from the Roth balance.

These options apply to all types of withdrawals.

Withdrawal Deadlines Disappear

The TSP currently requires that you make a full withdrawal election after you turn 70.5 and have separated from federal service.

Failure to do that initiates an account “abandonment” process. The new law does away with this requirement.

While you will still need to receive IRS-required minimum distributions (RMDs), you will never be required to make a full withdrawal election.

Taking a partial withdrawal or installment payments will satisfy this requirement. If you take no action or don’t withdraw enough, you will automatically be sent the remaining RMD amount.

Accounts that have already been abandoned will be able to be restored without making a full withdrawal election. The restored balance can remain in the plan (subject to RMDs) with all the new withdrawal options available.

Retiring Before November? No Worries

Unlike programs that lock plan participants into keeping their initial election and payment/withdrawal choices, the FRTIB is keeping all current options TSP participants have.

At the same time, it’s also giving them the freedom to change their post-separation payment structure or amount when the new options are rolled out.

Why Did It Take So Long?

Creating new rules to give plan participants more choices is one thing. Implementing them into a system as complex and vast as the TSP is something else entirely. The FRTIB says it has needed this time to change internal protocols and processes.

There will be new forms federal employees must fill out to institute changes on their TSP accounts when these changes are fully enacted.

Other Considerations if Retirement is Close

As retirement nears, federal employees will want to shift their mindset from an accumulation focus to an income focus.

Now is the time to put an income plan in place because living well in retirement is the result of having a tax-wise and fee-smart income plan.

Questions federal employees will want to consider:

  • Will my TSP account and other retirement assets be enough to provide me secure income for life?
  • Are my future income streams mapped out?
  • How long will they generate income?
  • How will I maximize my overall benefits?
  • What medical and healthcare needs must I plan for?

Federal employees have some of the best benefits of any organization in the world, but they can also be complicated.

Having a game plan that details how to make the most of these benefits will serve plan participants well by completing their retirement and financial pictures. That way they know just what to expect as they begin and journey through the end of retirement.

Putting Your Future in Place

Are you a federal employee needing guidance in coordinating your benefits with the rest of your financial picture? Do you need assistance in planning for a financially comfortable and secure retirement?

Help is just a click away with financial professionals at SafeMoney.com. Use our “Find a Financial Professional” section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723.

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