With the New Rules in Place, Will TSP Now Expand Investment Options? By: Carol Schmidlin
Finally, after many years of disgruntled TSP participants facing severe limitations to accessing their retirement funds, the TSP Modernization went into effect September 15, 2019. If you are not yet familiar with the changes below is a summary:
After separation of service:
· You can take multiple partial withdrawals, not to exceed one every 30 days
· You can take partial withdrawals and installment payments simultaneously
· You have the option to take monthly, quarterly and annual installment payments
· You can start, stop, or make changes to your installment payments at any time
· You have the option to choose the source of withdrawal payments, including traditional, Roth or both
Before separation and age 59 ½ or older:
· You can make up to four age-based in-service withdrawals
· You have the option to choose the source of withdrawal payments, including traditional, Roth or both
Before separation hardship withdrawals:
· There is no longer a 6-month suspension of contributions if a participant takes a hardship withdrawal.
With just two weeks in, I have heard a few obstacles from TSP participants and wanted to share them.
Obstacle #1: Complete withdrawal request online
TSP Participants need to go online to request a partial withdrawal and make changes to installment payments. While that may sound simple to most, it can pose problems for those whom don’t have a computer and a printer. Although you are told to go online to process the request, you still need to print and sign the forms.
Obstacle #2: Notarization of Signature(s)
The forms needed to submit a withdrawal request are:
· TSP-75, Age Bases In-Service Withdrawal Request
· TSP-95, Changes to Installment Payments
· TSP-99, Withdrawal Request for Separated and Beneficiary Participants
These forms require TSP participant and if applicable spouse, to sign the form in front of a notary every time that you want to do a withdrawal or change request. This may create a problem if you are not close to an institution with a notary, or if you or your spouse is home-bound. Regardless, it is just a hassle!
While the TSP Modernization Act has expanded withdrawal options, they have not addressed the dissatisfaction participants have among withdrawal options. TSP has only 5 basic funds with four of them (F fund, C fund, S fund and I fund) linked to an index. The G fund is invested in short-term treasuries, specially issued to the TSP. Principal and interest is guaranteed by the U.S. Government. In addition, the G fund can be affected when the statutory debt limit is reached.
Earlier law allowed for an investment window, that would allow investors to put some of their TSP in an outside mutual fund. This would include the opportunity to have funds in other sectors of the economy such as healthcare, energy, real estate, emerging markets, high yield fixed income and others.
There have been several bills introduced in Congress that would necessitate TSP to offer certain kinds of specialized funds, or to restrict investments in current funds so that investors do not sponsor certain activities. Unfortunately, TSP has signaled that they would oppose such bills.
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