The TSP has issued guidance on the qualifying rules and procedures for changes in its loan and withdrawal policies enacted as part of the CARES Act virus relief law, saying the loan options will be available no later than June 22 and the withdrawal option in mid-July.
In both cases, it said, the special provisions apply only to those meeting at least one of three criteria (in the TSP’s words):
• You have been diagnosed with the virus SARS–CoV–2 or with coronavirus disease 2019 (COVID–19) by a test approved by the Centers for Disease Control and Prevention.
• Your spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) has been diagnosed with such virus or disease by such a test.
• You are experiencing adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).
Regarding loans, the law increased the maximum amount from $50,000 to $100,000, and the portion of your available balance you can borrow is raised from 50 to 100 percent. The deadline for applying for such a loan will be sometime in September; the TSP said it will soon announce an exact date.
The law further allows a borrower to suspend the obligation to make payments on a TSP loan or loans for 12 months, in turn extending the term of the loan. “This applies to existing loans and loans taken in the remainder of 2020. We will make a new form available for you to request this suspension. You have until December 31, 2020, to have your payments suspended,” it said.
Regarding withdrawals, the law allows for a one-time withdrawal through the end of this year of up to $100,000, with a waiver of the usual requirements that you be at least 59 ½ years old or certify that you meet specific financial hardship criteria. “Though you may request that we withhold money from your withdrawal for federal income tax, we will not automatically do that,” the TSP said, adding that the $100,000 maximum applies to collective withdrawals from all tax-favored retirement savings accounts, such as IRAs.
Any portion of a distribution that otherwise would be taxable still will be taxable, though; tax may be pro-rated over three years or paid all in one year at the account holder’s choice. Those who take such withdrawals this year must designate them as a coronavirus-related distribution when filing taxes next year for this year. That is to be done on Form 8915-E, which the IRS is expected to make available before the end of the year for filing 2020 taxes.
It adds: “you may repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that you received the distribution. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct plan-to-plan transfer so that you do not owe federal income tax on the distribution. The law allows you to repay coronavirus-related distributions to the plan from which you received it or to another eligible retirement plan.”