Top 3 Changes to Thrift Savings Plan (TSP) Withdrawals in 2019
By Maura C. Schauss, CFP® and Jane Huang, MBA, CFP®
If you’ve been frustrated by the complexity and inflexibility surrounding your federal Thrift Savings Plan (TSP), you’re not alone. Fortunately, many of the rules and restrictions surrounding your options for contributing and withdrawing will be relaxed when the TSP Modernization act goes into effect on September 15th, 2019. The new rules are designed to give you more control over your money and apply to all TSP account owners, regardless of whether or not you’re already receiving monthly payments. The top three changes to TSP withdrawals in 2019 are greater flexibility in partial withdrawals, making withdrawal changes at any time, and the ability to choose which accounts your withdrawals are coming from.
Greater Flexibility for Partial Withdrawals
Under the current rules, only one partial withdrawal is permitted in your lifetime. But beginning in September, while still in service (and older than 59½) you may take up to four partial withdrawals per year. After separation, you can use as many partial withdrawals as you please, provided that you don’t exceed one payment per 30-day period. One main benefit is that previously taken partial withdrawals during your service don’t affect taking a partial withdrawal after separation. You may also take partial withdrawals if you are receiving post-separation installment payments.
Start, Stop, And Make Changes at Any Time
Up until September 15th, if you were receiving regular post-separation distributions, you were limited to monthly installments and changes were only permitted during the open period from October 1 - December 15th. Now you will be free to choose between monthly, quarterly, or annual distributions, giving you greater control over your money. You could even select to stop payments entirely, and unlike under the current rules, you won’t be forced to take the lump sum of your remaining balance. If you are over age 70½, you do need to take the IRS-mandated Required Minimum Distributions (RMDs). Use this RMD calculator and contact your financial advisor to determine your specific RMD requirement.
An additional change under the new rules is the ability to change from life expectancy to fixed dollar amount payments. Keep in mind, though, that this is a one-time change. If you have chosen to receive fixed dollar amounts, you may not change to life expectancy payments. Because any changes you make to payments or distributions may affect your taxes, it’s important to contact your financial advisor.
Choose Which Account Funds Your Withdrawals
The current TSP rules require withdrawals to be funded on a pro-rata basis, meaning if you have 60% in a Roth account and 40% in a traditional account, your payments will come from both accounts in those proportions. Under the new rules, you will have the freedom to choose if your payments are coming from your Roth balances, traditional balances, or both. Of course, you can still choose to withdraw on a pro-rata basis from both accounts, but you will have the option to draw from your Roth or your traditional balance only.
The Bottom Line
The new TSP rules can really help you simplify managing your retirement money. Starting on September 15th, you’ll be gaining powerful options and additional flexibility to give you more control over the funds you’ve saved in your Thrift Savings Plan.
Need assistance to determine how the new options affect you? We at Washington Wealth Advisors can help! Call our office at 703.584.2700 or email firstname.lastname@example.org.
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