TSP Participants Over 59½ can make 4 in-service withdrawals per year, making at least one every 30 days. Read how this simple rule can quickly get complicated.
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The TSP Modernization Act was approved in 2017 and went fully into effect in 2019. The legislation changed the frequency that the plan’s participants could access cash from their account. For federal employees and retirees older than 59½, the law adjusted the rules surrounding withdrawals, allowing one distribution every 30 days. For feds still in-service, there was a limit of 4 withdrawals per calendar year. Also restructured, TSP account owners were now able to set up automatic distributions occurring monthly, quarterly, or annually.
Here's where these rules get complex: an automatic monthly payment only counts as one of the four allowable withdrawals when the payment is established or changed in some manner (frequency, amount, or date of disbursal). The actual monthly distribution would obviously surpass the four allowable annual withdrawals by the fourth month of the year. Here are two situations where this comes into play:
- For example, let’s imagine that a TSP account holder requests a monthly distribution that will begin the following month. If they subsequently decide to withdraw their full TSP amount within 30 days of establishing the monthly distribution, it will not be allowed even if an actual distribution from the TSP account has not yet occurred. Setting up (or adjusting) the automatic payment counts as one of the four annual withdrawals- not the withdrawal itself.
- On the flip side, if a TSP participant sets up a recurring monthly payment more than 30 days ago, but received one of those withdrawals within the last 30 days, the request for a lump sum disbursal would be permissible.
Withdrawals After Leaving Service
Those who have left federal service, through retirement or otherwise, have three main options for taking withdrawals:
- 1. Installment payments, which are based on life expectancy or it can be a fixed amount. The frequency of these withdrawals can be monthly, quarterly, or yearly. TSP participants can change the frequency and dollar amount at any given time, however, it should be noted that switching from payments based on life expectancy to a fixed dollar can have negative tax consequences.
- 2. One-time Withdrawals – minimum amount is $1000.
- 3. Annuity – an annuity can be purchased from the “TSP annuity vendor” which will provide a guaranteed fixed payment for life. (Minimum amount is $3000.)
Until Next Time,
**Written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
*** TSP plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional.