John Grobe, Federal Career Experts
Remember back in high school when a teacher would announce what we called a “pop quiz”? This article, as well as occasional future articles will be a retiree’s (or pre-retiree’s) version of a pop quiz about federal retirement; especially about the Thrift Savings Plan (TSP) and Individual Retirement Arrangements (IRAs).
Pop quizzes, though annoying, were designed to test our knowledge of the subject matter and to ensure that we were grasping the concepts that our teachers were trying to get us to understand. The rules that surround retirement, the TSP and IRAs are complex and change frequently, and what we don’t know can hurt us. Therefore, it’s good to be sure that we correctly understand those rules.
Today’s quiz will be in a True/False format to examine some key concepts and help you be aware of your assumptions about them.
1) When you are separated from federal service (by retirement or otherwise), you will be subject to a 10% early withdrawal penalty for anything you withdraw from your TSP before you reach the age of 59 ½.
False. The 10% early withdrawal penalty will not apply to withdrawals taken by separated employees who separated in the year in which they turned 55 (or later). For special category employees (e.g., law enforcement officers, firefighters, etc.) the age is 50.
2) The recently enacted CARES Act permanently raises the amount that can be taken in a TSP loan to $100,000 from the previous level of $50,000.
False. Though the CARES Act raises the allowable loan amount to $100,000 for those who are affected by the coronavirus, it is a temporary measure that only applies to loans taken by September 23, 2020. After that date the maximum allowable loan will revert to $50,000.
3) When the TSP was introduced in 1987, it consisted of only one fund.
True. Between April of 1987 and January of 1988, the G Fund was the only fund in the TSP. The C and F Funds were introduced in late January 1988.
4) The TSP predated IRAs.
False. IRAs were introduced in 1974, thirteen years prior to the introduction of the TSP.
5) A federal employee who is age 72 or older must take required minimum distributions (RMDs) from their TSP on an annual basis.
False. A federal employee who is 72 or over does not have to begin taking RMDs until after they separate from federal service. On the other hand, a separated employee (e.g., retiree, resignee, etc.) does have to start RMDs in the year in which they turn 72. Until the implementation of the SECURE Act this January, the age was 70 ½.
6) A federal employee who has taken a financial hardship withdrawal from the TSP is precluded from contributing to the TSP for a period of 6 months.
False. However, this statement would have been true prior to September 15, 2019.
7) You can take a loan from your IRA.
False. Loans are can be taken from employer sponsored plans like the TSP, but not from IRAs.
8) You can roll money from any outside IRA into the Thrift Savings Plan.
False. Though you can roll some IRA money into the TSP, you cannot roll: a) money from a Roth IRA; and b) after tax money from a traditional IRA into the Thrift Plan.
9) You must empty out your TSP within ten years of your separation from federal service.
False. You never have to empty out your TSP. However, changes to the rules on IRAs that were introduced in the SECURE Act, do require that many IRA beneficiaries empty out their inherited IRAs in 10 years.
10) Reading FEDweek’s TSP Investment Report on a regular basis will help you understand the myriad rules that apply to the TSP.
True. Keep reading the TSP Investment Report and you’ll be kept informed of changes to the TSP!