Fedweek

The TSP has said that widened withdrawal options will become effective in September 2019, a date that likely will disappoint some investors who had been hoping for faster action; authority for the changes was enacted in late 2017 after years of criticisms that the program’s withdrawal choices are too limited.

The TSP further said that date will apply to all of those changes, contrary to earlier indications that some of them could be offered sooner than others. As it had said earlier, the TSP stressed that implementing the law will take time—it will in fact use nearly all of the two years the law gave it.

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The TSP itself had proposed the changes after surveys showed that many separated participants transfer their money to other retirement savings accounts such as IRAs because those accounts offer more tailoring of withdrawals. 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).

While announcing the effective date, the TSP added some details of the new policies. The law allowed the TSP to limit the number of age-based in-service withdrawals and post-separation withdrawals; the TSP has now said that age-based withdrawals will be limited to four per year but there will be no limit on post-separation withdrawals.

The law also created 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. As of next September, they will be allowed to choose quarterly or annual payouts as well, change the amount or schedule at any time, and the requirement to take a lump-sum with the balance remaining after stopping the payments will be ended.

The law did 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, there will no longer be a requirement to make a full withdrawal decision by that point.

The TSP earlier had announced a coming change that was not part of the law but that the TSP will carry out under its own authority: allowing account holders who have both traditional and Roth balances to specify how much of a partial withdrawal they want taken from each type of balance. Under current policy, withdrawals must be taken proportionately from each.