Helping Federal Employees and Annuitants Understand Their Benefits

 

TSP Considerations

What Will You Do With Your TSP When You Retire?




Retirement Assistance

 

Updated 11/11/2019

Federal Employee's CSRS & FERS TSP Considerations

 

If you don't need the cash in your account or an immediate TSP annuity to make ends meet when you retire, you can leave your account active. Annuitants no longer have to withdraw their entire balance (or begin receiving monthly payments from the TSP or from the TSP annuity vendor) by April 1 of the year following the year you turn 70½ (or following the year you separate, if you are already over age 70½ when you leave Federal service). The witdrawal options changed in 2019 that now permist annuitants and survivors to retain their TSP accounts after raching 70 1/2. 

Retirees often consider moving their TSP account to another service to take advantage of a more diverse investment mix. Many vendors such as Fidelity and Vanguard allow participants to purchase any mutual fund, ETF, stock or bonds for their account. Those who are contemplating leaving the TSP need to be aware of the risks and costs involved beforehand. If you are contemplating this move read the article titled The TSP Advantage — Should I stay or Should I go.

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CONSIDERATIONS

 

Many opt to maintain their account with the TSP because of the fund's attractive earnings and very low administrative fees. The administrative fees are often half or less of what most private sector funds charge to maintain your accounts. Another significant advantage is that the G Fund has no market risk. Therefore, unlike most private sector funds, you don't have to worry about fund price fluctuations with the Government Bond Fund. The G Fund's 10 year compounded historical yield is 4.92%. An excellent yield by any standard. You still have market risks with the remaining funds, however their yields can be attractive in advancing markets. You have a number of withdrawal options and they are listed below.

The Thrift Savings Plan for CSRS employees provides an additional source of retirement income. Uncle Sam doesn't match your contributions like they do for FERS employees, however you are able to defer taxes on your account contributions and earnings.

The TSP for FERS employees is just one of the three parts of your total retirement package, along with Social Security and the Basic FERS Annuity. TSP Participation doesn't change Social Security benefits or your FERS Basic Annuity. The TSP is especially important to FERS employees because the formula used to compute your FERS Basic Annuity is less generous than the formula used to compute the CSRS annuity. 

The TSP provides several ways to withdraw your savings:

Withdrawal options will change September of 2019. The new options allow participants more flexibility.

A combination of any of the above three full withdrawal options is called a "mixed withdrawal."

You can have the TSP transfer all or part of any single payment or, in some cases, a series of monthly payments, to a traditional IRA or eligible employer plan by completing a TSP Transfer Form. Payments to you can be deposited directly into your checking or savings account by means of electronic funds transfer (EFT).

September 2019 Changes

The new withdrawal options fall into the following categories:

  • Multiple age-based (for those 59½ or older) in service and post-separation partial withdrawals will be allowed.
  • You’ll be able to choose whether your withdrawal should come from your Roth balance, your traditional balance, or a proportional mix of both.
  • You will no longer be required to make a full withdrawal election after you turn 70½ and are separated. (You will still need to receive IRS required minimum distributions (RMDs).
  • If you’re a separated participant, in addition to the option of monthly payments, you’ll be able to choose quarterly or annual payments, and you’ll be able to stop, start, or make changes to your installment payments at any time.

You can downlod OPM's nnew TSP FACT Sheet for addidtional details.  

Age based Withdrawals (In-Service Withdrawals)

An in-service withdrawal is a withdrawal you make from your TSP account while you are still actively employed in Federal civilian service or the uniformed services. There are two types of in-service withdrawals: financial hardship withdrawals and age-based withdrawals. Before making an in-service withdrawal, keep in mind that the Thrift Savings Plan (TSP) is a retirement savings and investment plan. It was designed to help you save for your future. If you are covered by the Federal Employees’ Retirement System (FERS), the TSP is a critical component of your Federal retirement benefits and may represent a significant part of your retirement income. Before you decide to withdraw your account while you are still employed, carefully consider not only the impact of your decision on your immediate need, but also its impact on your future well-being.

Participants who are age 59 ½ or older and still employed by the Federal Government can use TSP 75 form to request a withdrawal of $1,000 or more from their TSP accounts. You can make only one age-based in-service withdrawal. Also, if you make an age-based in-service withdrawal, you will not be able to make a partial withdrawal after you leave Federal service.

Use the TSP 75 form to request a one-time-only age-based in-service withdrawal of all or a portion of your vested account balance. You must be a TSP participant age 59½ or older and currently employed by the Federal Government to request an age based withdrawal. Before completing this form, read the booklets listed un TSP Resources.

Caution: The TSP only permits an in-service age-based transfer of all or a portion of your age-based withdrawal directly to a traditional IRA, eligible employer plan, or Roth IRA. You can only transfer to oneaccount as mentioned above, not to multiple accounts. If you wish to transfer your withdrawal to more than one account you will have to transfer it a traditional IRA, eligible employer plan, or Roth IRA using the TSP-75 form and then have the fund that you transferred your account to transfer a portion of what they received from the TSP to your other desired accounts. YOU MUST CONFIRM that the receiving fund will allow additional transfers. The employee will still be enrolled in the TSP

 

Transferring IRA & ROTH Accounts into the TSP  

Use the following form to request a transfer or to complete a rollover of tax-deferred money from an eligible retirement plan into the traditional (non-Roth) or ROTH balance of your Thrift Savings Plan (TSP) account. You must have an open TSP account with a balance when your request is received by the TSP. Note: Money cannot be transferred or rolled over into a beneficiary participant account.

The form's instructions will guide you through the process, if you have a question about the transfer call the TSP Help line, their number is 1-877-968-3778.

 

TSP Resources

 

 

Go to TSP Roth Conversion Page
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