The Senate has joined the House in passing a bill (HR-3031) to widen the withdrawal options in the TSP, sending it to President Trump for his expected signature.

The relative lack of withdrawal options has been fingered as a main reason that large numbers of investors transfer their accounts to other retirement savings vehicles, such as IRAs, after retiring or leaving federal employment for other reasons. The TSP currently allows only one partial withdrawal after separation, with a subsequent withdrawal election having to cover the remaining balance. Even the one partial withdrawal is not allowed for those who took an in-service “age-based” withdrawal (allowed after age 59 ½; only one of those is allowed, as well).

The measure would allow multiple age-based in-service withdrawals and multiple post-separation withdrawals, although the TSP could limit the number at its discretion. Presumably any limits would be addressed in the implementing rules that will be needed. It is unclear how long the rule-making process would take and until then the current policies would continue.

Further, the bill would create more flexibility in the option to choose “substantially equal” withdrawals. Currently such payments must be taken monthly, account holders can change the amount only once a year, and those who stop such payments may take out the remainder only as a lump sum. Under the bill, they could choose quarterly or annual payouts as well, could change the amount or schedule at any time, and could use the money remaining after stopping such payments to buy an annuity as well as to take a lump-sum.

The bill would not change the requirement, which applies to all similar retirement savings programs, that investors take minimum distributions after age 70 ½ (or after retirement if they worked beyond that age). However, it would end the requirement to make a final withdrawal decision by that point.