Fedweek

The TSP has finalized the needed rules to carry out its upcoming new withdrawal policies, leaving them unchanged from the draft version it published in June.

The action comes just ahead of the September 15 effective date of the new policies and just days before the TSP will begin a blackout period on processing withdrawal requests in preparation for that launch. The TSP will not accept withdrawal requests September 7-14 and has recommended that anyone near making a withdrawal election should wait until the new options are in place, along with online features designed to reduce the chance of errors in making elections.

In finalizing the rules, the TSP said that the comments it received to the draft rules either addressed matters outside the TSP’s authority or did not relate to the 2017 law triggering the upcoming changes. In sum, the new policies will:

* End the limit of one age-based in-service withdrawal (allowed without tax penalty after age 59 ½) by allowing up to four a year, at least 30 days apart.

* End the policy limiting account holders to only one partial withdrawal post-separation (with the second withdrawal requiring that a choice be made for the remaining account balance) by allowing an unlimited number, also at least 30 days apart.

* Turn the “substantially equal” payment withdrawal option into the “installment” payment option, adding the ability to: elect quarterly or annual payments in addition to monthly payments and change that election at any time; change the amount at any time rather than just once a year; elect partial lump-sum withdrawals even while taking installment payments; and allowing those who stop the installment payments to elect an annuity with the remaining balance rather than being limited to only a lump-sum withdrawal.

* Allow investors with both traditional and Roth balances to choose to take withdrawals (both in-service and post-separation) from only one or the other, in addition to what has been the only allowable method, taking withdrawals proportionately from both.

* End a ban against new personal investments for six months after taking an in-service financial hardship withdrawal.

* End a requirement to make a decision on withdrawing the full account by April 1 of the year after turning age 70 ½, eliminating a complex suspension and reinstatement process for those who didn’t (the requirement to begin taking certain minimum withdrawals at that point will remain in effect, however).