As a follow up to my previous article regarding the CARES Act and TSP, here is an update as to how TSP will implement the loan and withdrawal provisions provided by the Act to assist Americans struggling with the impacts of the Coronavirus. The board made the following announcement at the end of last week.
First, the Act’s loan provisions will be available to TSP participants no later than June 22, 2020, and that the withdrawal provisions will be available in mid-July 2020. The board also emphasized that both the loan and withdrawal provisions are available to participants only if you can certify that you meet one or more of the following criteria:
- You have been diagnosed with the virus by a test approved by the CDC (Centers for Disease Control and Prevention)
- Your spouse or dependent has been diagnosed with the virus or disease by such a test
- You are experiencing adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).
The loan provisions include the increase in loan amounts from a maximum of $50,000 to up to $100,000, and the portion of your available balance that can be borrowed is raised from 50% to 100%. The board indicated it will impose a deadline for loan applications. Currently, that deadline is described as being during September 2020. It will provide an exact date at a later time.
In addition, loan payments are eligible to be postponed for 12 months. This will also extend the length of the loan term by 12 months. This applies to both existing loans as well as loans taken in the remainder of 2020. There will be new form provided by TSP for participants to request this suspension, note- it is not available yet! The ability to make this request for postponement will be available until Dec. 31, 2020.
Lastly, regarding withdrawals- the Act allows for the waiver of the 10% early withdrawal penalty for withdrawals taken prior to age 59 ½, as well as the opportunity to spread out taxes due on the withdrawal over a three-year period (2020,2021,2022). The TSP has indicated they will allow a one-time withdrawal from TSP of up to $100,000 under these guidelines. The withdrawal deadline will be in December 2020 with the exact cutoff date coming soon.
As many have noted, the CARES Act was put together in short order by Congressional standards. The provisions are intended to get help to the American people suffering as a result of the virus as quickly as possible. These provisions as implemented by TSP are moving in the right direction. How quickly they can implement these provisions will directly impact the potential benefit to federal employees. As always, please contact us with specific questions. We are here to help!
**Written by Jennifer Meyer, Financial Planner. The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Jennifer Meyer and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.**
CARES Act TSP Loans