Thrift Savings Plan Withdrawal Options – Part I

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Over the last five years, there have been numerous changes to the Thrift Savings Plan (TSP) including TSP participant withdrawal options.

This is the first of four columns discussing the various withdrawal options for separated TSP participants.

Separated TSP participants include a civilian federal employee or a member of the uniformed services who has retired or left federal service or the uniformed services. Also included in the category of separated participants is a “beneficiary” participant who is a spousal beneficiary of a deceased federal employee/retiree or a deceased uniformed service participant who established a TSP account in his or her name.

These columns will present information about the TSP withdrawal process, the rules that govern withdrawals, and the tax implications of each withdrawal option.

With currently many federal employees and uniformed service members retiring in their late 50’s and early 60’s, the importance of having a good TSP withdrawal strategy cannot be overemphasized.

It is not unreasonable to assume that many of these individuals could live into their 80’s and 90’s, needing the income from their TSP account withdrawals to help pay their retirement expenses. With inflation expected to return to its normal average annual rate of 4 to 6 percent, separated and beneficiary TSP participants are advised to make sure that they do everything possible to maintain their TSP account throughout their retirement, a period that may last for as long as 30 to 40 years.

Questions to Ask Before Making TSP Withdrawals

To accomplish this goal of maintaining their TSP accounts, TSP participants should ask themselves the following questions before they decide to take distributions from their TSP accounts:

  1. When to start withdrawing from the TSP account?
  2. How much does the participant expect things will really cost them during retirement?
  3. Will the participant have enough retirement income to pay for all of his or her expenses during retirement?
  4. Will the participant need to provide income for any dependents/heirs from their federal retirement income?
  5. Will the participant be moving to an area in which expenses will be significantly higher or lower compared to where he or she lived before retiring?

Leaving Money in the TSP

Unless a TSP separated participant or a beneficiary participant is subject to required minimum distributions (RMDs) or has an account balance of less than $2,000, there are no requirements for a separated or beneficiary TSP participant to do anything with their TSP account. No distributions, rollovers, transfers or inter-fund transfers have to be paid. The TSP account will continue to accrue earnings. Click HERE to read more.

 

Maximum Telework Designation to End May 15, OPM Says

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OPM has said that the “maximum telework” government-wide operating status designation, put in place more than three years ago in response to the Coronavirus pandemic, will end May 15 since “COVID-19 is not driving decisions regarding how federal agencies work and serve the public as it was at the outset of the pandemic.”

That follows recent issuance of an OMB memo calling on agencies to return more employees to their regular worksites and for more often, although still leaving them with discretion in the name of “organizational health and organizational performance.” The OMB memo came in the wake of criticisms about continued high levels of telework by federal employees even as the threat of the virus ebbed and President Biden had declared the pandemic to be over.

“For the last several years, executive departments and agencies have taken steps for the effective, orderly, and safe increased return to the workplace, and many federal employees have completed reentry. We have maintained the COVID-19 governmentwide operating status until now to preserve maximum flexibility for agencies to learn from work environment innovations and to allow for agencies to adjust their reentry plans in the most appropriate way considering the needs of each agency,” says the OPM memo, on chcoc.gov.

“As a practical matter, we do not expect this operating status change to have significant impact on agency and workforce readiness. Agencies have been executing their reentry plans and policies over the past year . . . Supervisors and employees should continue to follow their internal agency plans and standard operating procedures,” it adds.

OPM characterized the OMB memo as standing for “an expectation to increase meaningful in-person work while still using flexible operational policies. Agencies should continue to strategically use telework and remote work policies in support of their workforce plans moving forward while capitalizing on the benefits of meaningful in-person work,” it says.

Citation: Fedweek, Published: 

 

 

The Demise of the US Dollar

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U.S. Government’s Investment Options Are Good but Could Be Great

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The U.S. Federal Thrift Savings Plan’s Lifecycle Funds’ unique status as part of a huge government entity is a blessing and a curse.

As the workplace retirement savings vehicle for U.S. federal civilian workers and uniformed services members, the Federal Retirement Thrift Savings Plan stands as the largest defined-contribution plan in not only the United States but also the world. Its more than 6.7 million participants include most employees of the U.S. government, such as postal workers, military personnel, agency employees, and members of Congress.

Like most U.S. retirement savings plans, target-date strategies are important and growing components of TSP. They are known as the Lifecycle or L Funds, and more than half of TSP’s 6.7 million participants have directed at least a portion of their assets to these target-date funds; of those, 2.3 million workers invest solely in the L Funds. To offer a measure of independent analysis to L Fund investors and the advisors who serve them, Morningstar reviewed the L Funds through a lens similar to the one used to examine target-date investment strategies available to the general public, examining the funds’ Process, People, Price, Parent, and Performance.

Here, we explore the main advantages and disadvantages of TSP L Funds. Let us know if there are any other TSP-related questions that you’d like us to pursue in the future.

Thrift Savings Plan L Fund Advantages:

  • Rigorous annual testing of asset-allocation glide path.
  • Access to G Fund that provides U.S. government-guaranteed yields with no bond-market risk
  • Underlying funds rely on well-regarded managers via BlackRock and State Street Global Advisors.
  • Access to G Fund that provides U.S.-government-guaranteed yields with no bond market risk.
  • Among the lowest expense ratios available to investors.
  • Unmatched level of transparency via board meetings and various reports available to public.
  • Returns have soundly matched expectations by protecting in down markets.
  • Long-term results consistently ahead of peers. Click HERE to read more.

 

FERS, TSP and Leaving a Federal Job Before Retirement Age

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Not everyone who starts a federal career will end up still being a federal employee at the time they retire. I remember when I started as a federal employee; I thought my job (city letter carrier) was going to be but a stop on my career journey. Twenty-six years later, I retired from Treasury as a federal employee. But that’s not the path all new-hires take; many of them end up leaving the federal government at some time, maybe soon after hiring on, or maybe half-way through their work life. This article is directed to those who think they will leave federal employment at some point prior to retirement and will discuss what happens to their FERS retirement and their Thrift Savings Plan.

If, when you separate from federal service, you have at least five years of civilian service, you will be entitled, at some future date, to a deferred annuity under FERS. It is almost always better to leave your FERS contributions on deposit with OPM than to withdraw them. With as little as five years of service, you will be entitled to the deferred annuity at the age of 62. Click HERE to read more.