At some point in the future, you will separate from federal service. That separation might be due to retirement, or you may choose to resign prior to becoming eligible for retirement, but the Thrift Savings Plan will not care why you separated. Once you have separated and cleared the payroll system, the TSP will allow you to take your money out of the plan if you choose to do so. It takes around thirty days before the TSP is aware that you have left federal service, so do not expect immediate access to your TSP funds. You can also leave your funds in the TSP if you want; in fact, the Thrift Board prefers that you leave your funds on deposit with them.
Once you separate from federal service, you will no longer be allowed to contribute to the TSP; TSP contributions must come from payroll deductions, and you will no longer be on the payroll. This is just about the only difference between an active federal employee and one who has left federal service. As a former employee, you will still be able to do all the other things that current employees do, such as:
You will still be able to re-balance your TSP account by means of inter-fund transfers. You will be subject to the same restrictions on inter-fund transfers that current employees face; that is, you will be limited to two unrestricted transfers per month, with additional transfers being allowed only if they are moving money into the G fund from the other funds (called “safe harbor” transfers).
You will still be able to roll or transfer qualified money from other individual or employer sponsored retirement accounts into the TSP. Upcoming articles will discuss rollovers both in and out of the TSP.
There are some differences between current and separated employees:
- A separated employee can withdraw their money from the TSP at any time, while a current employee can only withdraw money from the TSP if they are age 59 ½ or over (see my earlier article on “age-based withdrawals”).
- A separated employee will have to start taking required minimum distributions (RMDs) at the age of 70 ½, while a current employee who has reached 70 ½ is not required to take a RMD.
Those who have separated by retiring and those who have separated by resigning will have the same choices as to how to withdraw their money from the TSP, if they decide to do so. The Thrift Savings Plan has several choices of withdrawal method. These methods are covered in the TSP publication, Withdrawing Your TSP Account After Leaving Federal Service, which can be found in the “forms and publications” section of the TSP website. Future articles will go deeply into those choices, but there are a few items we should address here.
Federal income taxes will have to be paid on all withdrawals from the Traditional portion of your TSP. Whether or not state income taxes need to be paid will depend on the state in which you live; some states do not have an income tax, and others may exempt all or part of retirement income.
Federal income taxes may have to be paid on the portion of withdrawals from the Roth portion of your TSP if those withdrawals are not qualified, as may state income taxes. To be considered qualified, you must have had your Roth balance in your TSP account for at least five years and you must beat least 59 ½ years old. Refer to my earlier article on taxes for more information on this topic.
You will still have to resolve any outstanding TSP loans, either by paying them off, or by taking a taxable distribution of the outstanding loan balance.