This is the sixth of a series of columns discussing withdrawal options for separated Thrift Savings Plan (TSP) participants. Separated TSP participants include civilian federal employees and members of the Uniformed Services who have retired or left federal service or the Uniformed Services, respectively.
Included in this category of separated TSP participants is a beneficiary TSP participant who is a spousal beneficiary of a deceased federal employee/retiree or a Uniformed Services TSP participant and who established a TSP account in his or her name.
SEE ALSO:
- TSP Fixed Payment Option (Part 1)
- TSP Withdrawal Payments Based on Life Expectancy (Part 2)
- TSP Annuity (Part 3)
- Understanding TSP Rollover Rules (Part 4)
- Using the TSP to Fund a Roth IRA (Part 5)
This column will discuss some special considerations with respect to a separated TSP participant’s distributions from his or her TSP account.
Vesting Requirements
TSP vesting requirements with respect to the TSP apply only to FERS-covered participants and members of the Uniformed Services covered by the Blended Retirement System (BRS).
They do not apply to CSRS-covered participants (those TSP participants who are currently CSRS or CSRS Offset employees or who retired as a CSRS or CSRS Offset employee), to non-BRS uniformed services members, or to TSP beneficiary participants.
A FERS-covered or a BRS TSP participant must have served for a certain number of years in order to be entitled to (“vested”) in the Agency/Service Automatic (1 percent of gross pay) contributions in the TSP participant’s account and the accrued earnings on those contributions.
• Most FERS-covered employees become vested in the Agency Automatic (1 percent) contributions after three years of federal civilian service.
• FERS employees in Congressional and certain noncareer positions become vested in the Agency Automatic (1 percent of gross pay) contributions after completing two years of such service.
• BRS TSP participants become vested in Uniformed Services Automatic (1 percent in gross pay) contributions after completing two years of Uniformed Services duty.
Some important items to note about TSP vesting requirements:
• All years of service in a position eligible to contribute to the TSP count toward vesting – even if a FERS-covered employee or Uniformed Services member does not contribute via payroll deduction to the TSP.
• Civilian service does not count towards the vesting requirement in a Uniformed Services (BRS) account, and military service does not count towards the vesting requirement in a FERS account.
• FERS and BRS participants are always vested in their own TSP contributions (made via payroll deduction) and the accrued earnings on those contributions, and the matching contributions their agencies or services make and the accrued earnings on those contributions. CSRS participants and non-BRS Uniformed Services participants are always vested in all of the money in their TSP accounts since they do not include Agency/Service Automatic (1 percent of gross pay) contributions.
Mutual Fund Window
Any money a TSP participant has invested in the TSP mutual fund window must be transferred to a TSP fund before it can be distributed. However, money in the “mutual fund window” is included when the TSP calculates life expectancy installment amounts, the expected duration of fixed dollar-amount installments, and TSP Required Minimum Distributions (RMDs).
Spouses’ Rights
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 TSP participants. A married FERS, CSRS or Uniform Services TSP participant (even if separated from a spouse) is subject to certain spouses’ rights requirements, as explained below. The rules depend on whether a TSP participant is a married FERS employee or a Uniformed Services TSP participant, or a married CSRS TSP participant.
• A married FERS or Uniformed Services TSP participant with a total TSP account balance of more than $3,500. A spouse is entitled by law to a prescribed TSP annuity; namely, a joint life annuity with a 50 percent survivor benefit, level payments, and no cash refund.
If the married FERS or Uniformed Services TSP participant chooses any other annuity or any other distribution option, then the spouse must provide signed (electronic or paper) authorization for the distribution to be processed. This signature requirement is also true if a FERS or Uniform Services TSP participant requests a change in the dollar amount of installment payments. This is because the change in the dollar amount of installment payments could affect the amount available for an annuity.
• A married CSRS participant with a total TSP account balance of more than $3,500. The TSP must notify the spouse of the TSP participant CSRS/TSP participant distribution request. This is also true if the CSRS annuitant requests a change in the amount or frequency of installment payments since this could affect the amount available for an annuity.
Exceptions. A married TSP participant may request an exception to these spouses’ rights requirements by requesting, completing, and submitting the exception request form. But exceptions are granted only in rare circumstances.
Required Minimum Distributions (RMDs)
SEE ALSO: Understanding TSP Required Minimum Distributions
The Internal Revenue Code requires that a TSP participant receive a portion of his or her TSP account, called the participant’s “required minimum distribution” or RMD, beginning with their required beginning date (RBD). The RBD depends on when the TSP participant was born. The following table summarizes the RBD depending on when a TSP participant was born.
RMD Applicable Age and Required Beginning Date
Any distributions a TSP participant who is subject to RMDs will be used to satisfy the requirement.