The Thrift Savings Plan (TSP), is the main source of tax-deferred investment for government employees. Similar to a 401(k) or a 403(b), this plan allows for contributions on a yearly basis that can be deducted from that year’s taxable income. They are generally low-cost and simple to use. Withdrawing money from the plan before the age of 59.5 would usually incur a 10% penalty. After the owner reaches the age of 70.5, they must begin to take a required minimum distribution from the account that year and each year going forward.
The rules for taking money from TSP accounts have been very limiting, compared to other retirement savings plans. Because of this, it is vital to work with an experienced advisor or consultant who can formulate a more viable plan for retirement income.
The current rules allow for only two partial withdrawals. Many of our clients have rolled over these withdrawal funds into their personal IRA’s, giving them better control and increased options for how the funds can be invested.
If you take an age-based withdrawal while you’re still working, then the second withdrawal would only be permitted after separation from that job and that distribution would have to be the full remaining balance. Likewise, if you are already separated from service and have taken a partial withdrawal, the second withdrawal must be of the entire remaining account balance.
Previously, there was no way to turn off monthly payments once activated without cashing out the policy. Also, if you had a TSP and a ROTH TSP, you had to take funds proportionally from both when taking a payment. These rules are currently still in place but will drastically change on September 15th of this year.
From that date forward, TSP owners will be allowed to take four age-based withdrawals while still working. TSP owners will also be able to make as many partial withdrawals as they like after separation, so long as they wait at least 30 days between transactions. Systematic payments will be able to be made monthly, quarterly or annually; can be stopped or started at any point; and will have no limiting effect future partial withdrawals. Owners will also be able to choose from which account the withdrawals are made if they have both a TSP and a ROTH TSP.
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