Changes Are Coming With The TSP Modernization Act

by John Cooney on May 14, 2019

Thrift Savings Plan, military retirement, retirement, fee-only financial planner

Changes are coming to the Thrift Savings Plan and that is a good thing!  Whenever I talk to someone with a TSP account, they are usually pretty positive with the exception of one area, withdrawals.  The TSP is behind most other defined contribution plans with regards to flexibility in withdrawal options.  Luckily the Thrift Savings Board recognized this and forwarded some proposed changes to Congress and in 2017 the TSP Modernization Act was passed, which will provide significantly more flexibility to TSP participants.  The chart below outlines the major changes that are coming with the Modernization Act.  Although no specific date has been given for the changes to be active, there is a deadline.  All changes must be active no later than November of 2019.

 

Current Law

New Law

Age-Based Withdrawals (In Service)

One Allowed for life (If taken in-service, not allowed post separation)

Up to 4 age-based withdrawals allowed per calendar year (Does not prevent post-separation withdrawals)

Partial Withdrawal (Post Separation)

One Allowed (Only if no in-service withdrawal was made)

Flexibility to take one partial lump sum withdrawal every 30 days; No lifetime limits; option exists even while receiving installment payments

Full Withdrawal Election

Must be made at age 70 1/2 if separated from service

Not Required

Withdrawal Options

Single Payment; Life Annuity; Monthly Payments

Monthly, Quarterly, or Annual Installment Payments; Life Annuity; Partial Payments

Withdrawal Based on Tax Treatment

Pro-Rata from traditional and Roth balances

Option for traditional only or Roth only withdrawals as well as Pro-Rata

Required Minimum Distributions

Must be taken through withdrawal options; if no withdrawal option chosen account is deemed abandoned

Satisfied through withdrawal options OR automatically issued in December if no withdrawal options on record

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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