Congresswoman Eleanor Holmes Norton (D-DC) introduced last month legislation to expand the circumstances in which a recently separated federal employee can withdraw from their Thrift Savings Plan (TSP) account without being penalized.
If passed, the Thrift Savings Plan Emergency Withdrawal Act (HR 6929) would assist former federal employees pay their bills after leaving the federal workforce by allowing them to make penalty-free withdrawals from their TSP account in two ways:
- to make up the gap between the interim payments a retiree receives during the period the Office of Personnel Management (OPM) is calculating the retiree’s final annuity and the estimated final annuity. According to OPM, the interim payments are usually 20% to 40% less than the finalized net payment.
- allows penalty-free TSP withdrawals if the individual is involuntarily separated from the federal government.
In both cases, the maximum withdrawal would be $100,000. Individuals would be able to make a TSP withdrawal for up to a year after separation and to repay the withdrawn amount within three years to avoid the existing early withdrawal penalty, which is a 10% additional tax.
“During these troubling times for federal employees, this bill will help those who are separated from the federal government and in need of financial assistance,” Norton said. “This bill will allow former federal employees avoid financial hardship by allowing them to make penalty-free withdrawals from their TSP account while OPM is calculating their final annuity, or if they are involuntarily separated from federal service.”
New Federal Retiree Interim Annuity Payments
According to OPM, as soon as the agency gets a new retiree’s retirement records, they provide “interim” payments. These payments represent a portion of the retiree’s final benefit and are usually made on the first business day of each month. “We try to provide you with income until we finish processing your application,” the agency describes.
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The chart below from OPM’s Retirement Quick Guide illustrates the retirement process as 3-5 months long.
To read the full text of the bill, go here.