| Home |
Articles | TSP to Permit Hardship In-Service Withdrawals for Participants and Dependents Affected by Hurricane . . .
TSP to Permit Hardship In-Service Withdrawals for Participants and Dependents Affected by Hurricane Sandy
On November 21, 2012, the Thrift Savings Plan (TSP) announced temporary changes
to the financial hardship in-service withdrawal rules for participants affected
by Hurricane Sandy.
These changes allow participants who were affected by the hurricane, or who
had a family member living in the area affected by Hurricane Sandy, to take a
TSP hardship in-service withdrawal. But unlike the normal TSP hardship
in-service withdrawals in which participants who make such withdrawals are not
permitted to contribute to the TSP for the six month period following the
hardship in-service withdrawal, a hardship in-service withdrawal requested
because of Hurricane Sandy will not result in a six month contribution
suspension following the hardship withdrawal.
A TSP hardship in-service withdrawal applies to current employees younger
than age 59.5 with a TSP account. Note that current employees age 59.5 or older
with a TSP account are permitted to request a one time age-based
in-service withdrawal via form TSP-75. An age-based in-service withdrawal need
not be "justified". Withdrawn TSP funds via an age-based in-service withdrawal
can be used for any purpose, including paying for losses caused by Hurricane
Sandy. The TSP participant will have to pay full federal and state income taxes
on the amount withdrawn but no 10 percent early withdrawal penalty.
Under the normal rules for a TSP hardship in-service withdrawal, a TSP
participant who is approved to make a hardship in-service withdrawal must pay
federal and state income taxes on the amount withdrawn, a 10 percent early
withdrawal penalty, and is suspended for contributing to the TSP for the six
month period flowing the withdrawal. But those TSP participants who are eligible
to make a TSP hardship withdrawal because of Hurricane Sandy will not be barred
from contributing to the TSP for the six month period following the hardship
withdrawal. This also means that FERS-covered employees will not miss their
agency TSP matching contributions following the six month hardship in-service
withdrawal. However, participants who make in-service hardship withdrawals
will have to pay federal and state income taxes and a 10 percent early
If an employee wants to stop their TSP contributions for any reason, they
need to complete Form TSP-1, Election Form (TSP-U-1 for uniformed services) or
use their agency or service's automated system.
As of November 21, 2012, the TSP will treat any financial hardship in-service
withdrawal request via form TSP-76 as a qualifying hardship withdrawal provided
the TSP participant meets all of the following criteria:
1. A TSP participant's primary residence
or place of employment must be located in a covered disaster area and the
participant must have incurred a loss as a result of Hurricane Sandy. Covered
disaster areas are those areas of the US identified by the Federal Emergency
Management Agency (FEMA) for individual assistance due to Hurricane Sandy. These
areas of the US include:
- In Connecticut: Fairfield, Middlesex, New Haven and New London counties, and
the Mashantucket Pequot Tribal Nation located within New London County.
- In New Jersey: The counties of Atlantic, Bergen, Burlington, Camden, Cape
May , Cumberland, Essex, Gloucester, Hudson, Hunterdon, Mercer, Middlesex,
Monmouth, Morris, Ocean, Passaic, Salem, Somerset, Sussex, Union and Warren.
- In New York: The counties of Bronx, Kings, Nassau, New York, Orange, Putnam,
Queens, Richmond, Rockland, Sullivan, Suffolk, Ulster and Westchester.
- In Rhode Island: Newport and Washington counties
2. A TSP participant's hardship
in-service withdrawal will be used to assist an eligible family member who lives
or works in a covered disaster area and who incurred a loss as a result of
Hurricane Sandy. An eligible family member includes a son, daughter, parent,
grandparent or other dependents who lived or worked in the disaster area.In
addition, a TSP participant who wishes to make a hardship in-service withdrawal
must meet all of the following
requirements: (a) Must be actively employed as a federal civilian or a member of
the uniformed services; (b) Must write "Hurricane Sandy" on top of page 1 of
Form TSP-76; (c) Must check the "personal casualty" box on page 2 of Form
TSP-76, as the reason for requesting financial hardship; and (d) Must submit
Form TSP-76 and have it received by Jan. 25, 2013 and the distribution must
occur before Feb. 1, 2013.
The IRS allows the TSP to ignore the limitations that normally apply to
financial hardship in-service withdrawals, thus allowing the TSP hardship
withdrawal to be used, for example, to pay for food and shelter.
• SPOUSES' RIGHTS: For those employees who
are married (even if separated from a spouse), spouses' rights
apply to the financial hardship in-service withdrawal from your account as
If an employee cannot obtain a spouse's signature (FERS and uniformed
services), or if an employee does not know a spouse's whereabouts (CSRS), then
the employee must provide the spouse's Social Security number on the form and
submit Form TSP-16, Exception to Spousal Requirements (or TSP-U-16 for uniformed
services), along with the required documentation.
A TSP participant affected by Hurricane Sandy can also apply for a general
purpose loan and use the loan proceeds to help pay for damages and losses caused
by Hurricane Sandy. With a TSP general purpose loan, a TSP participant has up to
five years to pay back the loan and can continue regular contributions to their
TSP account. The participant would pay interest to himself or herself at the
current Government Securities (G) fund interest rate, currently less than two
About the Author
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Financial
Consultant, Chartered Life Underwriter, Registered Health Underwriter,
Registered Employee Benefits Consultant and Enrolled Agent in Silver Spring, MD
-- and the owner of EZ Accounting and Financial Services, an accounting,
tax preparation and financial planning firm also located in Silver Spring,
MD. Zurndorfer is also is an instructor at federal employee
retirement seminars throughout the country and writes numerous columns and books
on federal employee benefits.