Big Changes Are Coming to the TSP

Times are changing for the Thrift Savings Plan—and for all of the federal employees and retirees who have invested their retirement savings in it.

One recent change was the formal announcement that the TSP will no longer require a separate election for catch-up contributions for those age 50 and older. Instead, once a participant hits his or her annual limit for regular contributions, the TSP will automatically shift paycheck deductions to catch-up contributions. You can read more about what is known the “spillover method” in this TSP bulletin. 

Even bigger changes are coming to the TSP next month with the implementation of the TSP Modernization Act, which will affect all participants. These changes include:

• Adding the ability to request loans and withdrawals online by accessing the “withdrawal wizards” from your TSP account. (Although you can complete most of the forms online, you may have to print the forms and have them notarized if spousal consent is required.)
• The elimination of the six-month suspension of TSP contributions for participants who have taken a financial hardship in-service withdrawal.
• The end of the requirement to make a full withdrawal election. The new rules allow multiple changes throughout the distribution of your TSP account balance. Remember, you must have at least $200 in your TSP account for the account to remain open. By keeping your account open, you can transfer qualified money into the TSP later.
• The ability to choose whether your withdrawal will come only from your traditional (pre-tax) account balance or your Roth (post-tax) balance. You can decide to have the payments come out pro-rata from both.
• The opportunity to take lump-sum partial withdrawals once every 30 days. These are different from recurring monthly payments or what now will be called “installment payments.” Each lump sum payment will require a separate election rather than coming on a monthly basis automatically.
• The choice of taking installment payments monthly, quarterly or once per year. Participants will be eligible to start, stop or change installment payments at any time. 
• A more flexible life annuity option. Under the new rules, the annuity option will be permitted after other elections have already been made. For example, after installment payments have been started, a portion of the balance can be used to purchase a life annuity. Annuities can be elected more than once with a portion of your account balance. Remember, though, that funds are transferred from the TSP to the annuity provider (MetLife), and the benefits are locked in when the request is processed. The interest rate index is fixed for the life of the annuity and the payments cannot be stopped, suspended or changed.

You can find questions and answers about these and other changes on the TSP website. The TSP also has posted a series of series of videos about the implementation of the TSP Modernization Act on its YouTube channel.