New TSP withdrawal options approved late last year remain on track to become effective next September, with efforts to better educate participants about them to start just after the turn of the year, officials told an advisory council of employee organizations at a recent meeting.
The new options represent one of the most significant changes in the program’s history, and respond to the TSP’s concern about the high rate of participants who transfer their money into an IRA or other retirement account after separating from the government rather than leave their TSP accounts in place.
Under current policy, only one “age-based” (after age 59 ½) withdrawal while still working is allowed and only one partial withdrawal is allowed after separation, with the next withdrawal decision having to cover the entire balance—and a partial withdrawal after separation isn’t allowed for those who took an age-based withdrawal. Under the upcoming policy, up to four age-based in-service withdrawals will be allowed, and there will be no limit to partial withdrawals after separation, although they would have to be at least 30 days apart. Also, the TSP will no longer have a policy that those who take financial hardship-based in-service withdrawals cannot invest in the program for the six months afterward.
There also will be significant changes to one of the forms of post-separation withdrawals, the “substantially equal” payments option (lump-sums and purchases of annuities are the other two). In addition to monthly payments, quarterly and annual installment payments will be allowed, and the amounts could be changed at any time rather than once a year.
Further, a former requirement to make a full withdrawal decision by the year after turning age 70 1/2 will be ended (the requirement to take certain minimum withdrawals after that point will continue), and those who have both traditional and Roth balances will be able to choose to have a withdrawal come from one balance or the other or to take the withdrawal on a prorated basis as is required today.
The TSP said that the launch of those options will involve creation of numerous new forms, brochures and other materials, along with updates to its systems.