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.
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 authorized the 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 circumstances, 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.
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.
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 participants access 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 video on the new changes posted on its YouTube channel. You can also find more details on the TSP’s website here.