Changes to TSP policies effective September 15 will primarily affect withdrawals after separation from the government for retirement or other reasons, although there are also changes to “in-service” withdrawals for those still employed.

For both types of withdrawal, participants who have both “traditional” (tax-free on investment, taxable on withdrawal) and “Roth” (taxable on investment, tax-free on withdrawal) balances have been required to take any withdrawal proportionately from both. That will now be optional, in addition to a new option to take all the money from one or the other.

Regarding one form of in-service withdrawal, a “age-based” lump-sum allowed without tax penalty for those still actively employed past age 59 ½, the policy has been that only one such withdrawal has been allowed lifetime. The new policy will allow four such withdrawals per year; they will have to be at least 30 days apart. The other form, based on financial hardship (which must be proven), will be unchanged except to end a provision barring new investments by the employee for six months afterward.

Regarding post-separation withdrawals, the policy has been that only one partial withdrawal has been allowed lifetime, and taking an age-based withdrawal negated even that choice. Under the new policies, an unlimited number of partial withdrawals will be allowed, also so long as they are at least 30 days apart; the election of one or more age-based withdrawals will have no impact. Those with more than one account—one from civilian federal service and one from military service, for example—will have to make separate requests from each and the 30 day period will apply separately to each.

The largest number of changes will apply to what has been called “substantially equal payments,” which can be based on a fixed dollar amount or based on life expectancy. Those will remain the two structures but:

* They will be referred to as “installment payments,” reflecting the new option to take such payments quarterly or annually in addition to monthly, the only current option.

* While requests to change monthly installment amounts currently can only be made once each year during an open season, changes in the amount or frequency will be allowed at any time. Further, those who start and then stop taking installment payments no longer will be required to take the remainder of the account in a final lump-sum withdrawal; they will be allowed to elect to receive some or all of the remaining balance as a lump-sum, an annuity, or a combination.

* For someone who elects to receive installment payments from only one type of balance (traditional or Roth), once that balance has been paid out, payments will automatically switch to being drawn from the other.

The option to make a one-time election to change from payments based on life expectancy to fixed dollar amount payments will be unchanged, as will the policy that once a participant makes an election to receive fixed dollar installment payments, he or she may not switch to life expectancy based payments. A participant still will be allowed to only have one installment payment series in place per account at any time.

However, there will no longer be a requirement to make a decision on withdrawing the full account by the April 1 after turning age 70 ½; that will end a complex suspension and reinstatement process for those who don’t. However, the requirement to begin taking certain minimum withdrawals at that point will continue. The TSP will automatically send an amount sufficient to meet that requirement if the account holder does not withdraw that much.

Subscriber report: TSP Withdrawal Options: Now, and Coming Soon