Fedweek

The TSP board also has approved broadening withdrawal options, although that would require a change in law, meaning that the agency will have to make its case to Congress. TSP officials have said that the limited range of withdrawal options is another reason that about half of participants transfer out their money after separating. While the TSP allows for common withdrawal options such as lump sums, annuities and equal monthly payments, it restricts investors to only one partial withdrawal, with the second withdrawal choice having to involve the remaining account balance. IRAs, in contrast, offer much more choice in withdrawals. The TSP wants to allow multiple partial withdrawals, as well as multiple in-service “age-based” withdrawals. Those are withdrawals without tax penalty once an account holder passes age 59 1/2 while still employed; currently only one of those is allowed. Even assuming Congress enacts the needed legislation, potentially a long process itself with no guarantee of success, making those changes likely would take more than a year afterward. No changes are planned for in-service hardship withdrawals, which aren’t limited in number but which are available only if the employee has a certain level of financial need. Nor would the changes impact the tax code requirement for certain minimum withdrawals after age 70 1/2, although the current requirement to make a withdrawal decision by that point would be ended.