Thrift Savings Plan Has New Withdrawal Rules

The Thrift Savings Plan (TSP) has made it easier to withdraw your contributions.

Effective Sept.15, 2019, the TSP changed many of its withdrawal rules and loosened the restrictions on when you can access the money in your account.

The TSP is a retirement program similar to a 401(k) account. Most people can contribute up to $19,000 annually (this amount changes each year). For members in the Blended Retirement System and Civil Service employees, the government will match a member's contribution, up to 5% of the member's base pay.

Most of these changes affect those who have left the military or government and those who are retired.

One minor change affecting those who are still in the military is a removal of the rule limiting contributions after you get an in-service loan. Now, if you get a hardship loan, you can continue to make regular TSP contributions; previously, you had to wait six months after getting a loan before you could make any TSP contributions.

More details on in-service withdrawals.

Withdrawal Options Changing

The most exciting part of this change to the TSP is the flexibility of withdrawal options.

Previously, after you left federal employment, you could make only one partial post-separation withdrawal. Your options were a lump-sum payment, a monthly installment plan or an annuity payment. Once you made a choice, you were pretty much locked into that option forever. That meant you were pretty limited in how you could access your cash.

Now, if you choose an installment plan to withdraw your money after you retire and you need a big lump-sum payment for an emergency, you can get it at any time. You can also make changes to the monthly amount of the installment payments. You also have new options on the frequency of those installment payments: monthly, quarterly or annually.

You can also start or stop installment payments at any time.

If you're 59.5 or older and still working in federal civilian or uniformed service, you can now take up to four in-service withdrawals each year. Previously, you could get only one age-based in-service withdrawal.

Any in-service withdrawals you take will have no effect on the number of post-separation partial withdrawals you can take. Previously, you couldn't take a partial withdrawal after you left the service if you took an age-based withdrawal while in the military or civil service.

Under the new rules, you'll be able to choose whether your withdrawal should come from your Roth balance, your traditional balance or a proportional mix of both. Previously, any distributions were automatically proportional to your balance, often resulting in tax-time headaches.

Required Minimum Distribution

The IRS says you have to start taking a minimum amount of money out of your TSP each month once you reach 70.5 years old. There are really complicated rules on how to compute how much you have to withdraw to avoid getting into trouble with the tax folks.

Now, you don't have to worry about it anymore. The TSP will automatically figure out the required minimum distribution amount and send it to you each year if you don't make any plans.

Moving into the Electronic Age

Last but not least, the TSP will finally let you request withdrawals and do much of your financial planning online. Currently, the TSP requires you to fax or mail hard-copy documents for most withdrawals, distributions or changes.

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