The Federal Retirement Thrift Investment Board (FRTIB) is changing restrictions on life expectancy-based withdrawals in the Thrift Savings Plan (TSP), starting in January 2021.
According to the FRTIB, all TSP participants that are eligible for installment payments can opt into that plan in the new year. This will allow participants to begin receiving life-expectancy payments regardless of if they have chosen to start or stop these installments in the past.
“The TSP wants to be more competitive from an administrative standpoint with what they consider to be their competitors: IRAs, 401(k) [plans], things like that,” Greg Klingler, Director at GEBA Wealth Management, said.
This is another significant change for investors, as the Coronavirus Aid, Relief, and Economic Security (CARES) Act waived required minimum distributions from the TSP through the remainder of the 2020 calendar year. Prior to this rule change, investors could not stop distributions once they began them.
“From a financial advisor standpoint, this provides additional flexibility. We can start withdrawals. And let’s say you wait to take social security, for instance, then social security can start to cover a lot of your expenses,” Klingler explains. “As your health expenses go up, you can start [TSP] withdrawals again.”
The FRTIB warns that if an investor is currently under the age of 59-and-a-half, or has been receiving payments for less than five years, there could be tax consequences for stopping payments in the future.