Because the COVID-19 pandemic caused a steep and sudden decline in the stock markets and put a severe strain on many household budgets, the Thrift Savings Plan (as authorized by the recently enacted CARES Act) has made temporary changes related to required minimum distributions (RMDs) to give investors’ account balances time to recover.
The TSP said its actions have the following effects:
- You do not need to make any withdrawals from your TSP account in 2020 to satisfy an RMD, regardless of your age or employment status.
- The TSP will not send any automatic RMD payments for 2020.
- If you make a withdrawal, the TSP will withhold for federal taxes at the rate appropriate for the type of withdrawal you make, without regard to RMD rules that would otherwise apply. You can transfer or roll over to an IRA or eligible employer plan any otherwise eligible withdrawals you make. (See the TSP tax notice Important Tax Information About Payments From Your TSP Account [PDF] for more information about eligible rollover distributions.)
Questions and Answers About RMD Changes
The following FAQs were were recently released by the TSP:
Q: Will my installment payments get stopped automatically? If they don’t and I want to stop them, how do I do that?
Answer: The temporary waiver of RMDs does not stop installment payments you have elected to take, even if you only chose to take them to meet your RMD. If you want to stop receiving payments, you must log in to My Account on tsp.gov and select Withdrawals and Changes to Installment Payments.
Q. I chose to receive installment payments based on life expectancy so that I could withdraw exactly my RMD amount each year. With the waiver of 2020 RMDs, can I suspend these payments temporarily and then resume them next year?
Answer: No. If you stop life-expectancy-based installment payments, you can’t restart them. When you resume installment payments, they must be payments of a fixed dollar amount.
To clarify, if you stop your life-expectancy-based installment payments in 2020 to avoid withdrawing your 2020 RMD, then you have two options to receive only your RMD amount in 2021:
1. Do nothing and we will automatically send you your RMD amount as a single withdrawal before its due date.
2. If you want to receive payments on a quarterly or monthly schedule instead of getting one annual payment, divide your RMD amount by 4 (for a quarterly schedule) or 12 (for a monthly schedule) and use the result as the fixed dollar amount for your future payments. Since your RMD changes each year, you will need to adjust your installment payment amount each year by submitting a request through My Account (go to: www.TSP.gov)
Q. Are 2020 RMDs just being postponed or are they canceled? Will I have to receive two RMDs in 2021?
Answer: RMDs are waived for 2020, which means they are effectively canceled. You do not have to receive two RMDs in 2021. This is true even if 2020 is your first RMD year and, therefore, not required until April 1, 2021. If 2020 is your first RMD year, the first RMD you have to take will be for your second RMD year (2021) and is due December 31, 2021.
Q: If I took a withdrawal less than 60 days ago, will I be able to use the TSP-60 form to roll over that distribution back into TSP using a personal check, even if it was a required minimum distribution?
Answer: Yes, you can use the TSP-60 form to roll over that distribution back into the TSP using a personal check.
Q: What if I’ve already received a required minimum distribution in 2020 and it was more than 60 days ago? Can the TSP extend the 60-day deadline for rollovers?
Answer: The authority to extend the 60-day deadline belongs to the IRS. When a law similar to the CARES Act went into effect in 2009, the IRS created an extended period in which people could roll over that money into an IRA or eligible employer plan. If the IRS does the same for the CARES Act, we will provide updates about it here.
- The TSP released the following statement on its website: “If you received any withdrawal between February 1 and May 15 that is eligible for rollover, then the IRS has extended your 60-day rollover deadline to July 15th. If you received an RMD (or an installment payment that included an RMD) between February 1 and May 15, then you can roll those amounts over—to an IRA or eligible employer plan or back into your TSP account—provided that you do so by July 15th. Use Form TSP‑60.”
- Federal benefits and tax expert, Ed Zurndorfer also provided the following update to this section on April 28: “The IRS has recently relaxed the rollover restrictions. As of April 27, any individual who took an RMD between February 1 and May 15, 2020 has until July 15, 2020 to roll over the RMD payment. For all RMDs received in January 2020 and after May, 2020, the 60-day deadline still applies. This means any federal annuitant who took an RMD between Feb 1, 2020 and now still has time (nearly 2.5 months) to rollover the RMD to an IRA and avoid paying the tax on the distribution. ”
Q: What does the TSP intend to do with the automatic RMD payments that were scheduled to occur either before the end of December 2020 (for separated participants who reached the age of 70½ before the end of 2019) or before the end of March 2021 (for participants whose first RMD year is 2020)?
Answer: We will not be making those payments, which are normally sent automatically before the deadline.
For additional questions regarding how the CARES Act affects the TSP, please contact the Thrift Savings Plan directly here: https://www.tsp.gov/ParticipantSupport/Content/contact/index.html or the ThriftLine at 1-877-968-3778.