At the end of each calendar year the Thrift Savings Plan changes its processing schedule – which is a good thing for most people who are receiving installment payments from the TSP. The reason for this change in most years is to ensure that all of those who are required to take a minimum distribution do so; of course, minimum distributions are not required for 2020 due to a provision in the CARES Act. Had minimum distributions been required, one would have to be 72 or older by the end of 2020 and separated from their federal job to be required to take a distribution.
Why are participants required to begin taking money out of the TSP (and similar plans) when they reach 72? So that Uncle Sam can start getting his tax money – that’s why! Taxes are deferred in the traditional TSP, but you have to pay them at some time; and the Internal Revenue Service has determined that required IRA and TSP distributions should begin in the year you turned 72. Unlike IRAs, both the traditional and Roth TSP require that minimum distributions be taken beginning the year in which separated participants turn 72. Minimum distributions are not required at any time in a Roth IRA.
The change in processing schedule will not affect those who normally get their TSP payments between the 1st and 16th of the month; they will get their payment on the normal date. However, any payments that are scheduled to be made between the 17th and the 31st will be made on the 17th Those payments will be considered income for 2020. For example, my wife who would normally get her payment on the 4th Tuesday of the month (December 22) will get it on the 17th (the 3rd Thursday). We won’t complain.
What about those who want to take a partial or full individual withdrawal in December? Any withdrawals processed through Tuesday, December 29th will be disbursed and will be reported to the IRS as income for 2020. Withdrawals processed on December 30th and 31st will be disbursed in early January and will be reported as income for 2021.
The above does not mean that you can start the withdrawal process the week of December 21st and receive your payment in 2020; maybe, but there’s no guarantee. If you are a married participant who is covered by FERS, you need your spouses signed notarized consent for any withdrawal. When you use one of the TSP “wizards” for your withdrawal, you will have to print off a copy, have your spouse sign it, get it notarized and mail or fax it in – that takes time. Then, it has to arrive at the TSP in time to be processed by December 27th to be considered income for 2020.
Make sure that you have your year-end timing right.