Prospects of wider TSP withdrawal options becoming available have improved with introduction in the House of a bill (HR-3031) to address an area in which the TSP has long been criticized as offering too little choice to both current employees and retirees.
Like a companion bill (S-873) offered earlier in the Senate, the House measure has bipartisan backing of civil service leaders and was offered at the request of the TSP, which has said that the relative lack of withdrawal options is a main reason that large numbers of investors transfer their accounts to IRAs and other retirement savings vehicles after separation for retirement or other reasons. They hope to encourage them to leave the money in the TSP instead and take advantage of features such as its low administrative expenses.
For current employees, the TSP currently allows only one in-service withdrawal after age 59 ½, and those taking one lose the option of taking a partial withdrawal after separation. The measure would allow multiple in-service withdrawals.
For those separating for retirement or other reasons, the bill would create more flexibility in the option to choose “substantially equal” withdrawals. Currently such payments must be taken monthly and account holders can change the amount only once a year. Under the bill, they could choose quarterly or annual payouts as well, change the amount or stop them at any time, or use the money remaining after such payments have started to buy an annuity or to take a lump-sum payment instead.
Also, multiple post-separation withdrawal choices also would be allowed, although the TSP could limit the number if that becomes an administrative burden.
With bipartisan support in both chambers, the bill could advance relatively quickly–although even after passage the TSP likely would need some time, at least a matter of months, to put the new options into effect, given its record of carrying out past laws changing the program’s terms.