Withdrawal Options for Your Thrift Savings Plan (TSP) (Jun) (2024)

FAQs

What are the new rules for TSP withdrawal options? ›

As part of the Secure Act 2.0 that was put into effect January 1^st 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.

Submit your withdrawal forms directly to the TSP Service Office. To reach the Service Office, call the TSP ThriftLine at 1-TSP-YOU-FRST (1-877-968-3778) or the TDD at 1-TSP-THRIFT5 (1-877-847-4385). Outside the U.S. and Canada, please call 1-504-255-8777.

You can only withdraw funds in which you are vested (i.e., funds you are entitled to keep) based on your years of service. The amount of your age-59 ½ withdrawal must be at least $1,000 or your entire vested account balance (even if it's less than $1,000).

Federal Employees Retirement System (FERS) employees may also lose their matching agency contributions for this period. If you still think you need to do this, simply fill up and submit Form TSP 76 (Financial Hardship In-Service Withdrawal Request).

January 2023 news and announcements

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.

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.

It's usually easiest to take your required minimum distribution (RMD) in cash since there is no tax advantage. You can take just the dollar amount you need to, which you can't necessarily do otherwise.

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.

If you are 591/2 or older, you can make withdrawals from your TSP account while you are still employed . You must pay income tax on the taxable portion of your withdrawal unless you roll it over to an IRA or other eligible employer plan .

Some ATMs (especially bank network ATMs) allow you to make cardless withdrawals using your mobile banking app or mobile wallet. Another way to access cash is to cash a cheque, collect cashback, or go directly to your bank in person to withdraw the cash (although this can come with some fees).

How long does it take to process a full TSP withdrawal? ›

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.

Withdrawals permanently reduce your retirement savings as well as any earnings you would've earned. Withdrawals may be subject to income taxes or other penalties. If you're a married FERS participant or a member of the uniformed services, your spouse must sign a consent waiver for your in-service withdrawal.

You do not have to prove hardship to take a withdrawal from your 401(k). That is, you are not required to provide your employer with documentation attesting to your hardship.

Maximum loan amount

50% of the portion of your total account balance that is made up of your own contributions and earnings on those contributions (including any outstanding loan balance) or $10,000, whichever is greater, minus any outstanding loan balance.

A 401(k) hardship withdrawal is allowed by the IRS if you have an "immediate and heavy financial need." The IRS lists the following as situations that might qualify for a 401(k) hardship withdrawal: Certain medical expenses. Burial or funeral costs. Costs related to purchasing a principal residence.

Your catch-up contributions will be in addition to the 2023 TSP regular contribution limit, which means employees can contribute up to $30,000 in 2023. To maximize the catch-up contribution amount of $7,500 for 2023, employees will need to contribute an additional $288 per pay period ($7,500/26 = $288.46).

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.

To maximize your benefit for 2023, divide the IRS limit of $22,500 over 26 pay periods, which will result in an employee contribution of $865 each pay period. Your current biweekly TSP contribution amounts will automatically carryover from 2022 to 2023 unless you make a change.

With few exceptions, we rarely advise taking monies out of the TSP to pay down debt. The cost of doing so is generally greater than the benefit. I am helping my clients to go through the retirement process without any problems.

By using a TSP to pay off a mortgage, you will lose the mortgage-interest deduction that reduces your AGI, or adjusted gross income. Further, because tax-deferred assets are being used to pay off the mortgage, the tax consequences are compounded¹.

How many hardship withdrawals are allowed in a year? ›

You can receive no more than two hardship distributions during a plan year (calendar year for all Guideline 401(k) plans). The amount requested may not be more than the amount needed to relieve your financial need, but can include any amounts necessary to pay taxes or penalties reasonably anticipated.

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.

There's no fixed rule for when you should take an RMD during the calendar year; you have the flexibility to decide for yourself or with your advisor. Some opt to take an RMD at the beginning of the year to help fund their living costs or to cover a large expense.

Are RMDs reported to the IRS? RMDs are reported to the IRS. IRA custodians must indicate on Form 5498, IRA Contribution Information, if an RMD is due for the year from that account and file Forms 5498 with the IRS by May 31 each year.

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.

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.

Required minimum distributions (RMDs) are the minimum amount that you must withdraw from certain tax-advantaged retirement accounts. They begin at age 72 or 73, depending on your circ*mstances and continue indefinitely. There is, unfortunately, no age when RMDs stop.

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.

Use the TSP Web site (www.tsp.gov) to begin (and in some cases, complete) your withdrawal request. If your request cannot be completed on the Web because additional signa- tures, information, or documentation is needed, you may print the partially completed withdrawal request form at the end of your online session.

How to withdraw over $1,000? ›

According to the Substance Abuse and Mental Health Services Administration (SAMHSA), there are two types of withdrawal: acute withdrawal and protracted withdrawal.

The 4% rule is easy to follow. In the first year of retirement, you can withdraw up to 4% of your portfolio's value. If you have $1 million saved for retirement, for example, you could spend $40,000 in the first year of retirement following the 4% rule.

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). Otherwise, the TSP will then begin making RMDs on your behalf, by April 1 of the following year.

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.

But of course you won't need to pay the withdrawal back. A TSP loan is often the better option because you won't owe taxes or a penalty and you will get the money back into your account once you pay it back. But remember, the true cost of a TSP loan is not the $50 loan fee.

Documentation Required: Current written statement or notice from landlord, bank, or mortgage company on their letterhead detailing amounts due necessary to prevent the eviction or foreclosure. If written statement from landlord is provided, you must include a copy of the lease agreement.

– You must be having (or will have) trouble making your loan repayments because of reasonable cause (such as an illness or unemployment). There are many reasonable causes.

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.

Yes, a TSP loan can be denied if you do not meet the eligibility requirements. You must be a federal employee or member of the uniformed services to apply. Also, you must have a TSP account balance of at least $1, 000, and be a current federal employee.

When can you withdraw money from TSP without penalty? ›

Federal employees retiring or separating from federal service in the calendar year that you turn age 55 (or 50 if you're a special provision employee) or older, you can access the TSP funds without penalty. So as long as you meet that rule, you are good to go.

Requirements for an Age-Based In-Service Withdrawal

Current federal civilian employees and members of the uniformed services who are age 59½ or older are able to request a withdrawal of all or a part of their vested TSP account balance.

2023 Contribution Limits

The Internal Revenue Service has announced the Thrift Savings Plan (TSP) elective deferral limit for 2023 will increase to $22,500 per year.

If you are 591/2 or older, you can make withdrawals from your TSP account while you are still employed . You must pay income tax on the taxable portion of your withdrawal unless you roll it over to an IRA or other eligible employer plan .

Required minimum distributions (RMDs)

The Internal Revenue Code requires that you receive a portion of your TSP account (your “required minimum distribution” or “RMD”) beginning when you reach a specific age and are separated from service.

You can request a distribution using one of these methods or any combination of them that you choose. There is no limit to the number of distributions you can take after you retire, though processing times limit you to no more than one distribution request every 30 calendar days.

Catch-up contributions should not be dismissed.

They can be crucial if you are just starting to save for retirement in middle age or need to rebuild retirement savings at mid-life. Consider making them; they may make a significant difference for your savings effort.

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%).