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December 15 Deadline for TSP Withdrawals Under CARES Act

December 11, 2020 - By My Federal Retirement

The Thrift Savings Plan issued a message Thursday reminding participants that December 15 is the deadline for requesting a special withdrawal under the CARES Act.

Specifically, the message stated:

“The CARES Act allows coronavirus-affected participants to make a one-time withdrawal of up to $100,000 from a civilian or uniformed services account. If you are eligible and plan to make this type of withdrawal, we must receive your completed application on or before December 15, 2020. We cannot accept any applications received after 11:59 PM that day.:

More information from the TSP regarding CARES Act withdrawals is below.

  • SEE ALSO: Thrift Savings Plan’s Year-End Processing Schedule

CARES Act TSP withdrawal

You may make a one-time withdrawal of up to $100,000 from a civilian or uniformed services account. For those still in federal service, the usual requirements that you be at least 59½ years old or certify that you meet specific financial hardship criteria are waived. Though you may request that we withhold money from your withdrawal for federal income tax, we will not automatically do that.

This withdrawal is eligible for the favorable tax treatment described below, with all of the same options and restrictions. The deadline for applying for this withdrawal is December 15, 2020. When you apply for this withdrawal, you are self-certifying that you meet one or more of the conditions listed above. To protect your privacy, do NOT send supporting documentation with your application, especially medical information.

Favorable tax treatment for coronavirus-related withdrawals

Many TSP participants who meet the definition of a qualified individual can take advantage of the favorable tax provisions of the CARES Act. These provisions can be applied to the CARES Act withdrawal described above or to other withdrawals that you’re eligible for under existing rules.

If you’re an eligible civilian federal employee or member of the uniformed services, such withdrawals could include hardship withdrawals and age-based in-service “59½” withdrawals. If you’re separated from federal service or a beneficiary participant, these withdrawals could include single payments and some installment payments.

Only coronavirus-related distributions are eligible for the favorable tax treatment described here. As defined by the Internal Revenue Service (IRS), a coronavirus-related distribution is “a distribution (withdrawal) that is made from an eligible retirement plan to a qualified individual from January 1, 2020, to December 30, 2020, up to an aggregate limit of $100,000 from all plans and IRAs.” That means $100,000 is the maximum amount across all your retirement plans combined that you can apply these tax advantages to.

You must designate your withdrawal(s) as a coronavirus-related distribution when you file your taxes. To do that, you’ll file Form 8915-E, which the IRS is expected to make available before the end of 2020.

The tax advantages for qualified individuals taking coronavirus-related distributions are as follows:

The IRS will waive the 10% additional tax on early distributions.

You may spread the taxable income “ratably” over a three-year period, starting with the year in which you receive your distribution. For example, if you receive a $9,000 coronavirus-related distribution in 2020, you could report $3,000 in income on your federal income tax return for each of 2020, 2021, and 2022. This is optional; you can also choose to include all of the income in the year of the withdrawal.

You may repay all or part of the amount of your coronavirus-related distribution to an eligible retirement plan, provided that you complete the repayment within three years after the date that you received the distribution. If you repay a coronavirus-related distribution, the distribution will be treated as though it were repaid in a direct plan-to-plan transfer so that you do not owe federal income tax on the distribution.

The law allows you to repay coronavirus-related distributions to the plan from which you received it or to another eligible retirement plan.

For more details, please visit the TSP website at:  https://www.tsp.gov/covid-19/

Related:

  • How Waiver of RMD Payments Affects Federal Employees, Retirees in 2020 Under CARES Act
  • TSP Issues Updated Details on Temporary Loan and Withdrawal Options from CARES Act
  • How CARES Act Expanded Ways Individuals Can Deduct Charitable Contributions in 2020
  • Inheriting IRAs and TSP Gets More Complicated for Non-Spousal Heirs Under SECURE Act

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