Thrift Savings Program (TSP) Modernization Act Signed into Law

Pinnacle Personnel Services LLC  |  Debbie Hatch

Great news!  This past Friday, President Trump signed into law the TSP Modernization Act. This law provides welcomed changes to the thrift savings program.  First introduced in the Senate back in April, the law does away with numerous restrictions and offers new withdrawal choices.

To quote the Senate, back in April 2017 when the bill was first introduced:

“Each year, upon turning 59 ½ or separating from federal employment, workers transfer about $9 billion out of their TSP retirement funds into other, higher fee, retirement accounts.”

The reason?

Past TSP surveys show that the plan’s overly restrictive withdrawal options:  specifically, limiting partial withdrawals to one time only, and restricting changes in monthly dollar amounts to once a year, were not worth the lower fees for many people.  People have been willing to pay more for the flexibility other accounts provided them.

What does this law change? 

Up to this point, people age 59 ½ or older were limited to ONE in-service withdrawal.  Additionally, participants taking that withdrawal were not allowed to take a partial cash-out once separated.

• The law now allows multiple age-based withdrawals and subsequent post- separation partial withdrawals.

Current TSP rules allowed only one partial post-separation withdrawal, after which only full-withdrawal options were available.

• The law now allows multiple partial post-separation withdrawals. That said, TSP could impose limits if a deluge of withdrawals steeply raises administrative costs.

Currently, periodic payments can be selected only in monthly intervals.  Once selected, the amount received could only be changed one per year.

• The law now allows a schedule of quarterly or annual withdrawal payments. Participants can adjust payment amounts anytime, and may allow the remaining balance to remain in TSP if they stop periodic payments.

If you are interested in reading the entire verbiage of the law, you can do that here.

I welcome any questions you might have but I think these are awesome changes which will allow federal employees a lot more personal control over their financial account.