Fedweek

A bipartisan bill (S-873) offered in the Senate would expand both in-service and post-separation withdrawal options in the TSP, loosening restrictions that have been cited as a main reason that large numbers of investors transfer their money into IRAs after separation rather than leave the money in the TSP.

The measure would not change the three basic withdrawal options–lump-sum withdrawals, annuities and “substantially equal” payments–but would create more flexibility to use the third of those. Rather than only monthly payments whose amount can be changed only once a year, the measure would allow the account holder to designate annual or quarterly withdrawals instead, change the amount at any time, 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, while under current law only one age-based in-service withdrawal is allowed, after reaching age 59 ½, the bill would allow multiple age-based withdrawals. Similarly, while only one post-separation partial withdrawal is allowed, with the second choice having to cover the remainder of the account–and even the partial withdrawal is not allowed for those who took an age-based withdrawal while still working–multiple post-separation withdrawal choices also would be allowed. The TSP would have discretion to limit the number if that becomes an administrative burden.
The TSP previously asked Congress for authority to make those policy changes, which require a change in law. Should Congress pass the bill, 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.