The Federal Retirement Thrift Investment Board (FRTIB) isn’t going to let us forget that major changes are coming to the Thrift Savings Plan later this year. These changes will be due to the implementation of the TSP Modernization Act, and the Board is planning what they call a “significant launch promotion” beginning this month. It’s good that the Board is going all out to promote the changes, as the changes are beneficial for TSP participants and the participants need to know about them in order to take advantage of them.
The most recent implementation date announced by the Board for the changes is September 15, 2019. This has been moved forward from October 1, which was already ahead of the Congressionally imposed deadline of November 1st.
A brief recap of the changes is listed below.
Participants will no longer be limited to two post-separation withdrawals. Up until the changes go into effect, separated participants will only be able to take one partial withdrawal and one final withdrawal. If the participant had taken an age-based withdrawal while still employed, they will only be able to take one final withdrawal. Once the changes are implemented, there will be no limit to the number of post-separation partial withdrawals that can be taken, as long as they are not taken any more often than once every thirty days. Taking an age-based withdrawal while employed will no longer preclude separated participants from taking post-separation partial withdrawals. In fact, still employed participants will be able to take up to four age-based in-service withdrawals as long as they meet the age requirement (i.e., having reached the age of 59 ½).
Up until the Act is implemented, the only way to take installment payments from the TSP is on a monthly basis; the payments can be changed only once a year; and can never be stopped. After implementation, quarterly and annual installment payments will be allowed; the amount of payments can be changed more frequently; and they can be stopped and started.
Taking installment payments will no longer preclude a separated participant from taking a partial withdrawal.
Separated participants will no longer be required to make a “full withdrawal election” by the age of 70 ½. They will, however, still have to begin taking required minimum distributions from the TSP by April 1st of the year after the year in which they reach 70 ½. The RMDs could be done by taking a partial withdrawal or by setting up installment payments.
The implementation of the TSP Modernization Act represents a giant step forward by the Thrift Savings Plan.