The new Thrift Savings Plan (TSP) withdrawal options took effect on Sept. 15, 2019 and are available to every TSP participant, even if a TSP participant had taken withdrawals under the old (pre-Sept. 6, 2019) TSP withdrawal rules.
In addition to TSP participants, a spouse who is the designated beneficiary of a TSP participant is allowed to use the new TSP withdrawal options.
But for any beneficiary who is a non-spouse (such as a child or a sibling), the new withdrawal options do not apply. This is because for a non-spousal TSP beneficiary, within five years of the death of the TSP participant the TSP sends a single payment to the beneficiary for the full amount that the beneficiary is entitled to. The non-spousal beneficiary does have the option to request that the inherited TSP account be directly transferred to an inherited IRA (also known as a “death” IRA). This option will be discussed in the next column.
While it is important to understand that the new TSP withdrawal options allow for more flexibility, TSP participants should also understand that even with the new withdrawal options certain TSP options and rules have not changed.
Four of the more important options and rules that are not changing are discussed below.
1. Transferring IRAs and certain employer-sponsored retirement accounts into one’s TSP account
Assuming a TSP participant has at least $200 in his or her TSP account (this includes both the traditional TSP and the Roth TSP accounts), the individual can transfer into his or her TSP account(s) funds from a traditional IRA and/or eligible employer-sponsored retirement plan. One of the advantages of doing this is to consolidate one’s retirement savings in the TSP.
Another benefit is to take advantage of the TSP’s low fees, thereby saving on administrative fees and retaining more of one’s retirement savings. The following table summarizes which IRAs and which type of retirement accounts can and cannot be transferred into one’s TSP account(s):
2. Spousal consent
The Federal Employees’ Retirement System Act of 1986 (which created the TSP) provides certain rights to spouses of TSP participants. These rules do not apply to beneficiary participants.
A married FERS, CSRS or Uniformed Services participant – even if separated from his or her spouse – is subject to certain spousal rights and requirements, including: A married FERS or Uniformed Services participant with a total TSP account balance of more than $3,500 by law must request a TSP joint life annuity with a 50 percent spousal survivor benefit, level payments and no cash refund feature.
If the TSP participant chooses any other type of TSP annuity, any other withdrawal option, or any combination of options, then the TSP participant’s spouse must provide signed and notarized consent for the withdrawal to be processed. This is also the case if the TSP participant requests a change in the amount or frequency of installment payments since this could affect the amount available for an annuity. The new online withdrawal tools in “My Account” on the TSP’s website will take the TSP participant step-by-step through the withdrawal process. This online process will automatically guarantee prefilled forms for a married FERS or Uniformed Services TSP participant to print, complete, and submit by mail or FAX to the TSP. This includes a notarized spousal consent.
3. If the TSP participant is a married CSRS-covered employee or annuitant, with an account balance of more than $3,500, then the TSP will notify the participant’s spouse of the withdrawal
This is also the case if the TSP participant requests a change in the amount or frequency of installment payments since this could affect the amount available for an annuity.
4. Required minimum distributions (RMDs)
Under the new TSP withdrawal options, a TSP participant who has separated from federal service does not have to make a full withdrawal election once the participant reaches age 70.5. But the IRS requires the departed or retired TSP participant to start taking RMDs from the retired participant’s TSP account(s), starting in the year the participant is age 70.5 and every year thereafter. Any withdrawals the participant takes during the year while subject to RMDs will be used to satisfy the requirement.
If the total amount of the participant’s withdrawals during a particular year does not satisfy the requirement, the TSP will issue a supplemental payment for the remaining amount before the deadline that year. Note the following about TSP RMDs: (1) Both the traditional TSP and the Roth TSP are subject to the RMD rules; (2) RMDs cannot be transferred or rolled over.
This means that if a TSP participant made a withdrawal of any kind in a year that the participant is subject to an RMD and the participant requests a transfer of all or any portion of that withdrawal, the TSP will first calculate and distribute any RMD amount due directly to the participant before making a transfer; and (3) the deadline for beginning to take RMDs for a spousal beneficiary participant depends on whether the beneficiary’s spouse died before or after his or her required beginning date.