Fans of the Thrift Savings Plan, Uncle Sam’s in-house 401(k) plan, hope new withdrawal rules encourage more people to stick with it when they move to another job or retire. Many experts say the TSP, with its very low fees, levels of oversight and generous 5% match, is the best 401(k) plan around — period.
Despite all the good features — you and your two Senators are in the same investment club — many federal and postal workers switch to an outside 401(k) plan when they leave government. Some do it because they think the TSP’s funds — stocks, bonds, a treasury fund and five self-directing target date funds — don’t allow them to go all into specific markets, such as precious metals, dot.com and socially-conscience funds, or to invest in one or two countries or emerging markets.
But the main reason people give for leaving is that the TSP’s withdrawal rules are stuck in the early 20th century. Or were, until the rules changed one month ago. The new, easier withdrawal options should also cut down on the number of feds who make hardship withdrawals that drain their future accounts because they cannot be repaid.
While it is way to early to tell what impact, if any, the new relaxed withdrawal rules have on departing feds, the publicity about the changes has generated a lot of interest from many of the 5.8 million investors, including 39,399 with million-dollar TSP accounts as of the end of September. In March 2018 there were 23,098 TSP millionaires, most of them self-made by investing and holding in the C and S stock funds over decades.
The changes were designed to keep more investors in the TSP after they leave government, or to at least persuade people who do leave the TSP to leave a token amount in — a minimum of $250 — so they can return if they like. People who close out their accounts completely can’t rejoin, even though they regret investing in other options with fees that, overtime, can drain thousands of dollars from their account.
Here’s how the TSP explains its new 21st -century style withdrawal options:
“You now have more options for how and when you can access money from your TSP account. These options fall into the following categories:
After you separate from service, you can take multiple post-separation partial withdrawals.
If you’re age 59½ or older and still working in federal civilian or uniformed service, you can take up to four in-service withdrawals each year.
You can choose whether your withdrawal should come from your Roth balance, your traditional balance, or a proportional mix of both.
You no longer need to make a full withdrawal election after you turn 70½ years old and are separated from federal service. You will still need to receive IRS required minimum distributions (RMDs).
If you’re a separated participant, you can take monthly, quarterly, or annual payments.
You can stop, start or make changes to your installment payments at any time.
You now have enhanced online tools to help you make withdrawals in the My Account section of www.tsp.gov. For full details, click here.
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