Within the first 24 hours since the weekend launch, participants in the Thrift Savings Plan are already flocking to explore a variety of new withdrawal options, which went live Sunday.
As of Monday morning, some 9,300-9,400 participants have already initiated or have finished a new withdrawal request, according to the Federal Retirement Thrift Investment Board, the agency that administers the TSP.
Participants have completed some 5,000 withdrawal requests to date, Tanner Nohe, the FRTIB’s withdrawals...
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Within the first 24 hours since the weekend launch, participants in the Thrift Savings Plan are already flocking to explore a variety of new withdrawal options, which went live Sunday.
As of Monday morning, some 9,300-9,400 participants have already initiated or have finished a new withdrawal request, according to the Federal Retirement Thrift Investment Board, the agency that administers the TSP.
Participants have completed some 5,000 withdrawal requests to date, Tanner Nohe, the FRTIB’s withdrawals project manager, said Monday at the agency’s monthly board meeting. Those requests will be processed later Monday night, and the TSP will begin making distributions later this week.
Participants have initiated more than 1,400 requests, while more than 4,450 are awaiting final signatures from the participants.
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“Everything seems to be working well,” Nohe said.
TSP’s contact centers were especially busy Monday responding to participants’ questions, Tee Ramos, director of TSP participant services, said.
The FRTIB said it’s unclear at this point whether TSP participants are responding to the new withdrawal options with pent-up demand, or whether account holders are simply aware of the new changes and are curious to explore them.
The agency has been busy for months preparing its IT and other systems for the new withdrawal options.
The TSP Modernization Act, which authorizedthe FRTIB to make these changes based on feedback from the plan’s participants, gave the agency through November 2019 to implement the new options.
“The old rules were so restrictive and complicated, overly complicated, really,” Mark Keen, a certified financial planner and federal benefits expert for the National Active and Retired Federal Employees (NARFE) Association, said last week on Your Turn with Mike Causey. “They led to unfortunately, in certain circ*mstances, negative consequences.”
Here’s what’s new:
- The option to take monthly, quarterly and annual installment payments;
- Ability to take unlimited post-separation, partial withdrawals;
- Ability to take partial withdrawals and installment payments simultaneously;
- Option to choose the source of withdrawal payments, including traditional, Roth or both;
- Up to four age-based, in-service withdrawals at age 59-and-a-half or older; and,
- An end to contribution suspensions if a participant takes a hardship withdrawal.
“They’re going to really encourage federal employees who are still working— if they’re over 59-and-a-half and also those who have left federal service, whether they’ve resigned or retired — the ability to manage their TSP in retirement by leaving it there rather than having to move it to an [individual retirement account] IRA or some other place to have the flexibility that they have wanted,”Tammy Flanagan, a federal retirement benefits specialist, said in an interview on the Federal Drive with Tom Temin.
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But the old rules may have been so complicated that TSP participants may not entirely understand what exactly is different.
“We are seeing that most employees conceptually understand that this change is positive and improves their options when they want to distribute their money, but there is limited understanding as to how the changes will affect them directly,” said Greg Klingler, director of wealth management for the Government Employees Benefits Association Wealth Management division.
In an attempt to better explain how these new withdrawal options will impact you and your TSP, Federal News Network asked a few federal benefits experts to walk readers through the most common questions they’ve received from their clients in the lead-up to these changes.
Here’s what they said:
Generally speaking, what are my new options?
There are many changes, but here are some highlights.
Under the new TSP withdrawal options,all participants can take one withdrawal every 30 days. Participants who have left federal service will have no other limitations beyond the 30-day requirement to make partial withdrawals from the TSP.
Participants who are still in federal service at age 59-and-a-half or older will be able to take up to four partial withdrawals from the TSP during a given calendar year. The 30-day limit still applies, however, so participants can’t take four partial withdrawals during the span of two months, for example.
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Participants can now take monthly, quarterly or annual withdrawals, and they can change the amount of these payments — or stop and restart them — at any point.
In addition, participants will no longer need to make a final choice about their TSP balances at the age of 70-and-a-half.Now, the TSP will pay the remaining difference of a participant’s account through required minimum distributions (RMDs) to those who have reached age 70-and-a-half and haven’t determined how they’d like to withdraw the remaining funds in their accounts.
“This was the primary reason why employees left the TSP,” Klingler said. “The idea of requiring an employee to make a semi-permanent decision [about] their portfolio [was] for no other reason than due to their age.”
In the future, these participants will receive notices from the TSP reminding them that they haven’t made a full withdrawal election. These participants would receive several reminders throughout the year to take the required minimum distributions, which the Internal Revenue Code determines every year.
What happens if I have an outstanding loan balance but want to take a withdrawal from my TSP after I retire or leave government?
TSP participants in this scenario have two options under the new withdrawal rules, Flanagan said.
Participants with an outstanding TSP loan can either keep the unpaid balance, have it declared as taxable distribution, or they can choose to pay the loan.
“You may be able to roll over the taxable amount of the distribution into an IRA or eligible employer plan within 60 days to avoid taxes and penalties,” Flanagan added.
Participants must choose to either declare the unpaid balance or pay the loan before making a withdrawal.
If I take a hardship withdrawal, am I still prohibited from contributing while I have the loan?
No. Under the old rules, TSP participants who took a hardship withdrawal were temporarily suspended from making further contributions for the next six months.
But under the new options, that six-month contribution suspension is gone.
The FRTIB will notify some 63,000 TSP participants who have taken a hardship withdrawal within the last six months to inform them they can continue to contribute, Nohe said.
Why might I want to take a partial withdrawal if I’m already taking money out of my TSP on a monthly or quarterly basis?
Keen said the flexibility to schedule semi-regular payments and take a partial withdrawal when needed more easily gives participantsaccess to their own money, especially if you need some extra cash to pay for major repairs around the house or some other sudden life event.
“When somebody transitions to retirement, they don’t know exactly what their spending is going to be,” he said. “They’re in a period of transition, and yet we expect them to be able to say definitively, ‘here’s what I want out of my TSP on a monthly basis and be stuck with that for a full year.”
Do I still need to take equal distributions from both my Roth and traditional TSP accounts?
No. Under the new withdrawal options, participants can choose what balance (traditional or Roth) to withdraw money from. They can also choose exactly how much from each TSP account they want to take.
“Now, you can segregate that,” Flanagan said. “You can tell the TSP I only want these payments to come out of my traditional Thrift and then later on you can then elect the payments to come out of the Roth TSP.”
If you don’t specify what balance you’d like to tap into, the TSP will make the withdrawal in equal amounts from both your traditional and Roth accounts.
Participants cannot specify which fund— the C, G, F, S, I or lifecycle funds— to withdraw from, Flanagan said.
How can I actually make these withdrawal changes? Can I process them electronically?
Yes and no. The FRTIB has replaced many of the old withdrawal forms with new ones, and all of them will look slightly different from what you might remember.
Participants will complete these forms almost exclusively online, and a “smart” tool will help you calculate and fill out some fields automatically. Once the forms are complete, participants will typically be prompted to print and then sign them before mailing to the TSP.
In many cases, participants might need a signature or two notarized before the TSP can accept a form as complete.
“It’s not going to be a seamless electronic process in every case, but you will be filling that information out online, without physically holding the form in your hand until it’s done,” Flanagan said.
The FRTIB is exploring whether it can eliminate the need for a notarized signature and process all withdrawal requests electronically. The agency is currently engaged in a recordkeeping services acquisition, which will eventually modernize the FRTIB’s plan operations and customer services platform.
With this acquisition, the agency is hopeful it will automate more processes, withdrawal requests included.
Where else I can learn more about the new TSP withdrawal options?
The best place to start is the TSP itself, which has its own informational videoon the new changes posted on its YouTube channel. You can also find more details on the TSP’s website here.
FAQs
Under the new TSP withdrawal options, all participants can take one withdrawal every 30 days. Participants who have left federal service will have no other limitations beyond the 30-day requirement to make partial withdrawals from the TSP.
What are the new rules for TSP withdrawal options? ›
As part of the Secure Act 2.0 that was put into effect January 1st 2023, special provision retirees can either access their TSP separating from service the year they are turning 50 or older, or if separating with at least 25 years of service at any age. To access funds while still working you need to reach age 59 ½.
How do I avoid paying taxes on my TSP withdrawal? ›
Eligible rollover distributions of your traditional balance may be rolled over to a traditional IRA, an eligible employer plan, or a Roth IRA. taxed in the current year, and no income tax will be withheld. You won't be taxed on this money until you withdraw it from the traditional IRA or the eligible employer plan.
Do I have to withdraw my TSP at age 70? ›
If you have already separated from federal service, the IRS requires you to make a withdrawal choice before April 1st (of the year following the year you become age 72, referred to as the mandatory TSP Withdrawal Age).
At what age can I withdraw from TSP without penalty? ›
If you're younger than 59½, you may have to pay a 10% early withdrawal penalty tax. Any tax-exempt or Roth contributions included in your withdrawal are not subject to federal income tax; neither are any qualified Roth earnings.
What is a good TSP balance at retirement? ›
Answer: More! I frequently state that there is no such thing as too much money in the Thrift Savings Plan. If you want your TSP balance to be able to generate an inflation-indexed annual income of $10,000, most financial planners will suggest that you have a $250,000 balance at the time you retire.
Is it better to take RMD monthly or annually? ›
In most cases we can recommend framing the issue this way: Your money has the most potential for growth if you take your entire minimum distribution at the end of each calendar year. However, personal budgeting may be easiest if you take your minimum distribution in 12 monthly portions.
Do you pay capital gains on TSP withdrawal? ›
Unlike investment accounts, TSP withdrawals don't get the advantage of being taxed at the lower long-term capital gains rates. TSP withdrawals are always taxed at your ordinary income tax rate. However, whenever you take money out of the Roth TSP then that money comes out completely tax free.
Is my TSP withdrawal considered earned income? ›
No, these types of income are not considered earned income on the Disability Earnings Survey Form RI 30-2.
How do I increase my TSP withdrawal? ›
This is done through Form TSP-73 (Change in Monthly Payment Amount). Filling up and submitting this form will allow you to either: – Change the monthly payment amount.
All distributions must be made by the end of the 10th year after death, except for distributions made to certain eligible designated beneficiaries. See 10-year rule, later, for more information. Qualified plan loan offsets.
What is the required minimum distribution for TSP in 2023? ›
SECURE 2.0 increases the start age for required minimum distributions from 72 to 73 in 2023 and then further increases the start age to 75 in 2033. We're continuing to assess how SECURE 2.0 will affect the TSP and will provide updates as more details are finalized.
Can you get TSP and Social Security? ›
It is entirely up to the FERS annuitant to decide when to start receiving Social Security retirement benefits and when to start making TSP withdrawals. At some point of the FERS annuitant's retirement, these two sources of retirement income will have to be tapped in order to pay expected retirement expenses.
Can I withdraw my TSP full at retirement? ›
You can request to receive a total distribution of your entire TSP account balance if you want to take all of your money out of the TSP. Once processed, your TSP account balance will be $0, and you'll no longer be able to move money into the TSP from eligible plans.
Can I withdraw my TSP in a lump-sum? ›
When you are ready to withdraw your money from your TSP account, you can do it all at once (commonly referred to as a lump-sum payment) or over a period of time. Or you can purchase an annuity that will make payments to you for life. You also can choose any combination of these full withdrawal options.
Can I leave my TSP to my child? ›
You should designate a person or persons, your estate, or a trust to receive your TSP account after your death. To designate a beneficiary or beneficiaries, log in to My Account. For us to honor it, your beneficiary designation must be on file with us at the time of your death.
What is the highest TSP balance? ›
The largest TSP account balance the end of March 2021 was an astounding $9,318,238, which is up from “just” $6.3 million March 2020.
What is the highest TSP amount? ›
In addition to making regular TSP contributions, you may also make TSP Catch-up contributions, if you are age 50 or older (or will be turning age 50 in 2023). The 2023 IRS annual limit for Catch-up contributions is $7,500. This amount is in addition to the regular TSP limit of $22,500.
What does Dave Ramsey say about TSP? ›
In a nutshell, Ramsey advises federal employees to invest at least 5% in a Roth TSP, then invest the rest in a Roth IRA. He also recommends investing in a handful of TSP funds -- funds C,S, and I -- with a higher percent in the C Fund (at least 60 to 80%).
What is the disadvantage of RMD? ›
Drawbacks of required minimum distributions
The downside of RMDs is that once you reach 70 1/2, you have no choice but to start taking withdrawals. But since those withdrawals are treated as ordinary income, they automatically increase your tax burden.
Tip: Many people choose to have taxes withheld from their RMDs, as it is counted as ordinary income. If you choose not to do this, make sure you set aside money to pay the taxes. And be careful—sometimes underwithholding can result in a tax penalty.
What are RMD mistakes? ›
Common mistakes include withdrawing the wrong amount and forgetting to take your RMD.
Do I have to report TSP withdrawal on taxes? ›
Reporting taxes
We report all TSP withdrawals and distributions to the IRS, to the appropriate state tax agencies if applicable, and to you on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Do I need to report my TSP on my taxes? ›
With traditional TSP, your contributions go into the TSP before tax withholding, which can potentially lower your current income tax rate. But when you take money from your traditional TSP, you'll pay taxes on both your contributions and earnings at the income tax rate of the year you make the withdrawal.
Will my TSP continue to grow after I retire? ›
Yes, you are able to stop TSP withdrawals at any time and many people do take more from their TSP between when the FERS Supplement stops and when they start Social Security. Also, your TSP can continue to grow even when you are taking withdrawals.
How long does a TSP withdrawal take? ›
It generally takes between 7 to 10 business days to process your request once you've properly completed and submitted it. We disburse withdrawals each business day. You can check My Account at tsp.gov or call the ThriftLine to find out the status of your withdrawal request, including whether the payment has been made.
Will TSP automatically send RMD? ›
The TSP will automatically withdraw your RMD for you at the end of the year if you don't do it yourself. This means that TSP has your back if you forget in a given year but I would certainly still keep an eye on it if I were you.
How can I avoid paying taxes at the end of the year? ›
Having enough tax withheld or making quarterly estimated tax payments during the year can help you avoid problems at tax time. Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year.
When should I change my TSP allocation for 2023? ›
You may enroll in the TSP program or make contribution changes at any time; however, if you wish your contribution deductions to begin the first pay date in 2023, you must make your TSP election effective for pay period 26 (December 18, 2022, through December 31, 2022), which has a pay date of January 12, 2023.
What is the new $10,000 IRS rule? ›
A trade or business that receives more than $10,000 in related transactions must file Form 8300. If purchases are more than 24 hours apart and not connected in any way that the seller knows, or has reason to know, then the purchases are not related, and a Form 8300 is not required.
For single taxpayers and married individuals filing separately, the standard deduction rises to $13,850 for 2023, up $900, and for heads of households, the standard deduction will be $20,800 for tax year 2023, up $1,400 from the amount for tax year 2022.
What is the 2 out of 5 year rule IRS? ›
If you owned the home for at least 24 months (2 years) out of the last 5 years leading up to the date of sale (date of the closing), you meet the ownership requirement. For a married couple filing jointly, only one spouse has to meet the ownership requirement.
How much to max out TSP in 2023? ›
The IRC § 402(g) elective deferral limit for 2023 is $22,500. This limit applies to the traditional (tax-deferred) and Roth contributions made by an employee during the calendar year.
What is the TSP strategy for 2023? ›
As a reminder, the IRS announced the new limits for contributions to TSP in 2023. The maximum amount a participant under age 50 can contribute is $22,500. The catch up for investors over age 50 was increased to $7500 for 2023. The total contribution for employees over age 50 for 2023 is $30,000.
How much to contribute to TSP to max out in 2023? ›
The Thrift Savings Plan (TSP) contribution limits have been announced for 2023. The 2023 IRS annual limit for regular TSP contributions is $22,500, and the TSP Catch-up annual contributions limit is $7,500.
How much tax should I withhold from my TSP withdrawal? ›
The TSP is required to withhold 20% of your payment for federal income taxes. This means that in order to transfer your entire payment, you must use other funds to make up the 20% withheld. If you do not roll over the entire amount of your payment, the non-transferrable portion will be taxed.
What states are best for federal retirees? ›
Here again, there are many states (14 to be precise) that do not tax pension income at all: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming New Hampshire, Alabama, Illinois, Hawaii, Mississippi, and Pennsylvania.
Does TSP transfer to spouse after death? ›
Spouse beneficiaries can keep their balance in their TSP beneficiary participant account. Beneficiaries must first be identified and located, their Social Security numbers (or Employer Identification Numbers for estates or trusts) must be obtained and verified, and their addresses and dates of birth must be confirmed.
What is the penalty free age for TSP withdrawal? ›
If you're younger than 59½, you may have to pay a 10% early withdrawal penalty tax. Any tax-exempt or Roth contributions included in your withdrawal are not subject to federal income tax; neither are any qualified Roth earnings.
How many times can I withdraw from my TSP account? ›
There is no limit of the number of distributions you can take after you retire, though processing times limit you to no more than one every 30 calendar days. For detailed information on your distribution options, read the TSP booklet Distributions.
If you die with a TSP loan or loans outstanding, death benefit payments from your account cannot be distributed until the outstanding amount has been declared a loan foreclosure . The loan will be declared as taxable income to your estate, not to your beneficiaries . Your estate or survivors cannot repay the loan .
Does TSP have a death benefit? ›
The TSP has developed Form TSP-81, Death Benefits Election for a Beneficiary Other Than a Spouse, which will be sent to non-spouse beneficiaries prior to the payment of their death benefits. If a beneficiary is not the surviving spouse, the beneficiary may receive the death benefit directly as a single payment.
Can I withdraw everything from my TSP? ›
You can withdraw your entire TSP account balance in a single payment. A series of monthly payments. You can withdraw your entire account in a series of substantially equal monthly payments.
Can I withdraw my TSP in a lump sum? ›
When you are ready to withdraw your money from your TSP account, you can do it all at once (commonly referred to as a lump-sum payment) or over a period of time. Or you can purchase an annuity that will make payments to you for life. You also can choose any combination of these full withdrawal options.
What is the TSP withdrawal form 77? ›
Participants who are separated from Federal service can use this form to request a one-time partial withdrawal of $1,000 or more from their TSP accounts. You cannot make another partial withdrawal from this TSP account if you have previously made one, or if you have previously made an age-based in-service withdrawal.
Should I move my money out of TSP? ›
Consider leaving your funds in the TSP unless you don't want to deal with extra paper work or you want more investment options. Otherwise, consider rolling your TSP account assets into your new 401(k) plan if you have one, or one of the other following options.
How do I maximize my TSP account? ›
Maximizing Agency or Service Contributions
To receive the maximum Agency or Service Matching Contributions, you must contribute 5% of your basic pay each pay period.
What is the TSP form for full withdrawal? ›
Form TSP 70 is the form you need to fill up and submit when making a request for a full and immediate withdrawal of your entire vested Thrift Savings Plan (TSP) account balance. The TSP 70 form may be used only after you leave federal employment, and your employing agency confirms your separation from Federal service.
What is TSP 76 withdrawal? ›
What is a TSP 76? A TSP-76 form is known as a Financial Hardship In-Service Withdrawal Request. This form is used for requests related to Thrift Savings Plans, which are specialized financial plans available to federal employees, members of the military, and the immediate family members of these parties.
What is Form TSP 75 age based in-service withdrawal request? ›
The TSP-75 form is an Age-Based In-Service Withdrawal Request. Someone who is over the age of 59 and a half and still employed by the federal government can use this form to request a withdrawal of funds from their Thrift Savings Plan. This form will require personal information so the account can be identified.
