TSP Announces CARES Act Loans Now Available

Officials at the federal government's 401(k)-style retirement savings program announced Monday that the Thrift Savings Plan has implemented provisions of the CARES Act coronavirus response package making it easier for participants impacted by the pandemic to access money in their accounts.

Under the new temporary rules, eligible participants may borrow more money from their TSP accounts than usual, and may suspend all loan payments until the end of 2020. In order to qualify for the relaxed rules, participants, their spouses or dependents must have been diagnosed with COVID-19 or the participants are "experiencing adverse financial consequences" as a result of having been quarantined, furloughed or laid off due to the pandemic, or are unable to work because of a lack of child care.

Between now and Sept. 22, participants may borrow up to twice the normal maximum amount in a general purpose loan—$100,000 rather than the usual $50,000—up to 100% of their vested balance, double the usual 50% cap. But TSP officials stressed that the increased cap does not apply to residential loans.

The deadline for suspending loan payments this year is Nov. 30, the TSP said. In cases where participants suspend loan payments until the end of the year, the TSP will extend the life of the loan by the amount of time participants did not make payments.

"Once  the suspension ends on December 31, 2020, [the TSP will] remove the participant's loan(s) from suspension," wrote Tee Ramos, director of participant services. "The loan(s) will be reamortized, with the maximum payoff date extended by the length of the suspension. Participants should be aware that their loan payments may increase."

Ramos noted that during the suspension, participants may elect to submit loan payments on their own if they wish. And if a participant leaves federal service before the suspension period ends, they "must then pay the loan amount off within 90 days" or it will be considered a withdrawal and be subject to taxation.

Next month, the TSP is set to implement another provision of the CARES Act: a one-time withdrawal of up to $100,000 for eligible participants, waiving typical requirements that they be at least 59 1/2 years old or cite a specific financial hardship and that they be subject to a 10% tax penalty.