Following the approval of the 2017 TSP Modernization Act, the federal government is taking steps to ease the TSP withdrawal process and help retired and retiring employees access their funds. By giving employees more control over their retirement accounts, the government hopes to increase participation in the TSP program, grow recruitment efforts to government positions, and improve the stability of the current retirement services.
MyFEDBenefits continues to follow changes to Thrift Savings Plans as they roll out this year. By tracking these changes and sharing updates, we can prepare you for opportunities that come along and help you overcome challenges with your savings goals.
When Do the TSP Withdrawal Choices Go Into Effect?
While the TSP Modernization Act passed in 2017 and most retirement specialists are eager for improvements in the system, the roll-out isn’t expected for another year.
Experts estimate that the new TSP withdrawal choice will go into effect in September 2019, according to FEDweek.
Not only is the extended deadline disappointing for some employees and investors, it also comes with news that the TSP updates will all roll-out at once, rather than one at a time. Most people had hoped that some features would debut earlier than others, meaning changes could go into effect within a few months.Though the TSP Modernization Act passed in 2017, experts estimate that the new TSP withdrawal choice for retired workers won't go into effect until September 2019.Click To Tweet
The four main changes that most retirees will have to wait for include:
- Giving employees the ability to make multiple TSP withdrawals if they are 59½ or older.
- Allowing employees to decide whether they want to withdraw savings from their Roth balance, traditional balance, or a mixture of both.
- Permitting employees older 70½ to make partial withdrawals instead of mandating a full withdrawal or a mandatory partial minimum distribution each year.
- Letting employees choose between quarterly or annual payments and allowing them to make changes to the frequency at any time.
The TSP Act gives the Office of Personnel Management two years to roll out the changes, and experts believe the government agency will use the full two years to make sure everything is in order.
The TSP Is Stopping Its “Account Abandonment” Process
One of the main changes mentioned above is how retired employees 70½ and older no longer have to set up a full withdrawal and set up minimum distributions each year. The goal of this change is to give employees more control over their TSPs after they leave civil service. However, it is also meant to make TSP processes easier and reduce the workload on customer service staff.
If someone doesn’t withdraw funds from their TSP by the time they turn 70½, the agency moves all of their holdings into the G Fund, or a fund with government securities that accrue at a statutorily mandated interest rate. This is different from the S Fund, where most active TSPs are invested. The S Fund strives to match the performance of the Dow Jones and invests user portfolios in small to medium-sized businesses. Moving an account from an S Fund to a G Fund is part of the TSP’s account abandonment policy.
Whenever an account is labeled abandoned and moved into the G Fund, the owner receives a notification. The retired employee calls the TSP and works to update the account and typically make a full withdrawal out of it.
Instead of asking employees for a full withdrawal or changing their investments without their permission, the TSP will instead send checks with the minimum withdrawal amount to recipients once they turn 70½. This way, recipients still get their funds, and the TSP has to field fewer customer service calls about changes to the account or perceived abandonment.
These Rules Make TSP Withdrawal Simple
The TSP has always been presented as a similar investment option as a 401(k). Investing your salary in it is easy, and the account slowly grows throughout the course of your employment. However, what is easy during employment becomes complex in retirement. Many retired employees struggled to manage the seemingly endless list of rules associated with withdrawals and worried they weren’t spending their money effectively because of it.
The 2019 changes are meant to make living on a TSP as easy as investing in it. The government hopes to remove the bureaucracy associated with TSP withdrawal and convince more employees that this method of retirement is the way to go. Without active employee participation in the TSP, the plan is bound to collapse as there won’t be a steady influx of new funds to invest.
Get the Most Out of Your TSP Investment
Even though these changes aren’t going into effect until September 2019, you can plan today to make the most of your retirement savings. Talk to one of our local benefits specialists to discuss what benefits you are entitled to and the best way to receive them throughout the course of your retirement. Contact us today.