TSP Changes that Simplify Retirement Savings ~ A 2021 Review

Maura Schauss |

By Ann Blakey, CFP®, MBA

While the complexity and inflexibility surrounding the federal Thrift Savings Plan (TSP) has frustrated participants for decades, recent years have witnessed a few key changes to the TSP rules. The TSP Modernization Act of 2019 was designed to give you more control over your money. In 2020 and 2021, other changes went in effect that increased the amount many participants can save which offers more opportunities to be better prepared for retirement.

Let’s review the key changes to the TSP that help simplify saving for your retirement:

Greater Flexibility for Partial Withdrawals

Under the prior rules, only one partial withdrawal was permitted in your lifetime. But now, if you are older than 59 ½ and still working, 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.

Start, Stop, And Make Distribution Changes at Any Time

In the past, you were generally restricted to monthly installments and changes were limited. Now you are free to choose between monthly, quarterly, or annual distributions, giving you greater control over your money. You can even select to stop payments entirely and you won’t be forced to take the lump sum of your remaining balance. If you are over age 72, you do need to take the IRS-mandated Required Minimum Distributions (RMDs). Use this Fidelity RMD Calculator and contact your financial advisor to determine your specific RMD requirement.

Choose Which Account Funds Your Withdrawals

You now have the freedom to choose if your payments are coming from your Roth TSP balances, traditional pre-tax TSP balances, or both. Of course, you can still choose to withdraw on a pro-rata basis from both accounts, but you are no longer forced to do so. 

Automatic TSP Enrollment Changes

As of October 2020, new or re-hired participants automatically contribute 5% of their basic pay to the TSP, unless they elect otherwise. This was an increase from the 3% level that had been in place for years. The new 5% level will also ensure that all participants receive the full amount of agency matching contributions. 

Catch-up Contributions to TSP

If you are 50 or older, you are able to contribute an extra $6,500 to the TSP in 2021 – and, as January 2021, the new “spillover” method makes this easier to do. You no longer need to choose a separate TSP Catch-up election. Instead, any contributions you make over the regular $19,500 will automatically start counting toward your Catch-up limit and will not impact your agency’s matching contributions. 

The Bottom Line

These recent TSP rules can really help you simplify managing your retirement money.

If you need assistance to determine how the various TSP options affect you, we at Washington Wealth Advisors can help! Connect with us for review of your approach by calling our office at 703.584.2700 or email clientservices@washingtonwealthadv.com or book some time with us using our online calendar.

Important WASHINGTON WEALTH ADVISORS DISCLOSURES Information

ABOUT WASHINGTON WEALTH ADVISORS

Washington Wealth Advisors is a fee-only registered investment advisory firm serving busy families, executives, women building wealth, and small business owners. We provide Wealth Advisory Services—financial planning coupled with asset management—guided by a personalized investment strategy based on each client’s unique goals. Our unbiased advice, independent approach, and proactive investment management help to support our clients’ overall financial peace of mind.