By Jennifer Meyer, Financial Planner
Federal employees are looking forward to changes that are expected to make the Thrift Savings Plan (TSP) more employee and retiree friendly. However, as with most big changes, there is a lot of confusion about what the new rules actually are, and how they are going to impact you as a federal employee. Instead of flipping through thousands of regulatory pages, here’s our “What Does This Mean to Me” summary:
- Withdrawal Options-
Beginning Sept. 15, 2019 you will have some new options. Here are the highlights-
Once separated from service –
- you can take a partial withdrawal once every 30 days
- you can take partial withdrawals while taking monthly installments
- having taken age-based in-service withdrawals will not prevent you from taking post-separation partial withdrawals
- you will be able to stop, start, or make changes to your installment payments anytime (current rules only allow a change to be made one time each year)
- installment payments will now be able to be set up for monthly, quarterly, or annually (current rules only allow for monthly)
- While in service-
- you will be able to take up to four age-based (over 59 ½) withdrawals per calendar year
- Pro Rata withdrawals from Roth and Traditional TSP accounts
- Under the new law, you can select which account (Roth or Traditional, or both) you would like to have your funds withdrawn from. Previously, it was pro rata based on your overall allocation between the two accounts.
- You will no longer be required to make a full withdrawal of your TSP at age 70 ½
(However, if you are separated from service you WILL need to take your Required Minimum Distributions annually- this IRS rule is not impacted by the TSP changes)
Other changes with implementation projected in 2020
- Spillover strategy for catch up contributions
- Once the traditional contribution is reached, additional contributions will automatically “spillover” to become catch-up contributions
- New federal employees will be automatically enrolled in TSP at a 5% contribution rate (rollout expected in October 2020)
Note that there will be a blackout period for taking withdrawals from Sept. 7- Sept 14th, 2019 while the changes are put into full effect. If you need to take money out of TSP- properly completed forms must be received by Sept. 6th.
Now- while these changes are designed to, and in fact do greatly enhance the flexibility of TSP, they also add more rules and regulations around how to get your money out of TSP when you need or want it! It is even more confusing than before! This is why we always recommend talking to a financial advisor before taking any action with your TSP. Mistakes are costly both in real dollars as well as in the potential long-term impact of making a bad decision. At Serving Those Who Serve we are well versed in your current and new options regarding TSP, reach out to us with questions.
Our mission is always, Reach, Teach, Serve.
**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.**