Q – Does the TSP offer after tax investing as well as tax-deferred investing?
Q – How does the Roth 401(k) TSP compare to the Traditional TSP?
Q – Can the Roth 401(k) benefit me?
Q – How does Roth 401(k) TSP work?
Q – Can I transfer my current tax-deferred TSP account into the Roth 401(k) TSP?
Q – How much can I put into the TSP?
Q – What is the Catch-up provision?
Q – Can I send the Thrift Plan a check?
Q – How do I elect the catch-up contribution?
Q – Do I have to wait until certain times to change my contribution amounts?
Q – What investment options do I have?
Q – What are the administrative costs for the TSP?
Q – How often can I move my account balances among the funds?
Q – Should I move my money out of the TSP when I retire?
Q – Can I access my money while I am still working?
Q – Isn’t there a loan program?
Q – Why do I have to pay the loan back with interest?
Q – Can I take a loan after I am retired?
Q – What are my withdrawal options?
Q – What are the annuity options?
Q – I am married do I have to provide something to my spouse from my TSP?
Q – Can I take an amount out of TSP after I retire but not take the whole account balance?
Q – Can I move other money into my TSP?
Q – Can I move my TSP into a Roth 401(k) IRA?
Q – Are there penalties if I withdraw money before I am 59 ½?
Q – Are there exceptions to the penalty?
Q – Is there a point in time when I must withdraw all of my money from the TSP?
Q – Does the TSP offer after tax investing as well as tax-deferred investing?
A – Yes, there is a Roth 401(k) TSP option.
Q – How does the Roth 401(k) TSP compare to the Traditional TSP?
A – Roth 401(k) contributions are taken out of your paycheck after your income is taxed. When you withdraw funds from your Roth 401(k) balance, you will receive your Roth 401(k) contributions tax-free since you have already paid taxes on the contributions. You also won’t pay taxes on any earnings, as long as you’re at least age 59 1/2 (or disabled) and your withdrawal is made at least 5 years after the beginning of the year in which you made your first Roth 401(k) contribution.
Traditional (pre-tax) contributions, which lower your current taxable income, give you a tax break today. They grow in your account tax-deferred, but when you withdraw your money, you pay taxes on both the contributions and their earnings.
Q – Can the Roth 401(k) TSP benefit me?
A – Everyone’s situation is different. Whether you would be better off making traditional or Roth 401(k) contributions depends on your income tax rate now and in the future. For example, you might benefit from making Roth 401(k) TSP contributions if:
- You are in a low tax bracket now, but think your tax rate may be higher in retirement. With Roth 401(k), your contributions are taxed at your current lower rate, and you avoid paying taxes at the expected higher rate in the future.
- You are not in a low tax bracket now, but anticipate that your marginal Federal tax rate will increase in the coming years.
- You are a uniformed services member making contributions from tax-exempt pay earned in a combat zone. If you elect Roth 401(k) contributions, you will not pay taxes on either your Roth 410(k) contributions or their earnings (as long as you satisfy the age and 5-year holding requirements mentioned earlier).
- You want tax diversification and see an advantage in making after-tax contributions so that you can have tax-free withdrawals in retirement.
- You are age 50 or older and deployed to a combat zone while making catch-up contributions. You will be able to continue these contributions if they are Roth 401(k) contributions. (You can’t make catch-up contributions to your traditional TSP balance from tax-exempt pay.)
Q – How does the Roth 401(k) TSP work?
A –
- Money already in your account when you begin making Roth 401(k) contributions will remain part of your traditional balance. You will not be able to convert it to Roth 401(k).
- The combined total of your Roth 401(k) and tax-deferred traditional contributions in 2024 cannot exceed the elective deferral limit of $23,000, or the catch-up contribution limit of $7,500.
- Agency contributions will always be part of your traditional (non-Roth) balance.
- Any contribution allocation or interfund transfer will apply to the investment of both your Roth 401(k) and traditional contributions or balances.
- You will be able to transfer Roth 401(k), Roth 403(b), and Roth 457(b) (but not Roth IRA) money into the Roth 401(k) balance in your TSP account. Pre-tax transfers will continue to be placed in your traditional balance.
- You will be able to take loans, in-service withdrawals, and partial withdrawals from your account as before. You will be able to choose from tax-deferred or Roth 401K or on a pro rata basis–with a proportional amount from your traditional and Roth 401(k) balances.
- When you withdraw your account, you will be able to separately transfer any portion of your Roth 401(k) and traditional balances to IRAs or other eligible employer plans.
Q – Can I transfer my current tax-deferred TSP account into the Roth 410(k) TSP?
A – No.
Q – How much can I put into the TSP?
A – The amount is controlled by the IRS elective deferral amount. For 2024, federal employees under age 50 can have withheld from their pay $23,000.
Q – What is the Catch-up provision?
A – The catch-up is an opportunity for any employee age 50 and beyond to put an additional $7,500 into the TSP (for 2024 a total of $30,500). The Thrift Board has made the catch-up process simpler. Any employee who is age 50 or older any day in the year who contributes more than the elective deferral amount for the year the excess will automatically be considered a catch-up contribution. Additionally, the Thrift Board will assure so long as the contributions are made each pay period, that the full agency match will be added to the employees tax-deferred account.
Q – Can I send the Thrift Plan a check?
A – No, you cannot send a check to the Thrift Plan.
Q – How do I elect the catch-up contribution?
A – The Thrift Board has made the process easier for participants. If you’re turning 50 or older, you’ll no longer need to make separate catch-up elections to your TSP account each year.
- If you’re turning 50 or older and exceed the IRS elective deferral (or annual addition) limit, then your contributions will automatically start counting toward the IRS catch-up limit. Just add any contributions toward the catch-up limit in the same place as your other TSP contributions (https://www.tsp.gov/making-contributions/start-change-stop-contributions/).
- Your election will carry over each year unless you submit a new one.
- Contributions spilling over toward the catch-up limit will qualify for the match on up to 5% of your salary.
- You may start, stop, or change your contributions (https://www.tsp.gov/making-contributions/start-change-stop-contributions/) at any time. If you choose not to contribute toward the catch-up limit, you should adjust your TSP contributions accordingly.
Q – Do I have to wait until certain times to change my contribution amounts?
A – No, there are no longer open seasons. You can change your contributions at any time.
Q – What investment options do I have?
A – The Thrift Savings Plan offers you the following investment funds:
As of 12/31/23
- G Fund — Government Securities Fund $294.9 billion
- F Fund — Fixed Income Index Fund $33.1 billion
- C Fund — Common Stock Index Fund $339.0 billion
- S Fund — Small Cap Index Fund $99.9 billion
- I Fund — International Stock Index Fund $78.2 billion
- L Funds — Lifecycle Funds
Government Securities Investment (G) Fund—The G Fund is invested in short-term nonmarketable U.S. Treasury securities specially issued to the TSP guaranteed by the full faith and credit of the U.S. Government. There is no possibility of loss of principal (i.e., the face amount of the security) from default by the U.S. Government and, thus, no credit risk. The current Board policy of investing only in short-term securities also eliminates the risk of loss from fluctuations in the value of securities as a result of changes in overall market rates of interest (market risk). Although the securities in the ‘G’ Fund earn a long-term interest rate, the Board’s investment in the ‘G’ Fund is redeemable on any business day with no risk to principal. The value of ‘G’ Fund securities does not fluctuate, only the interest rate changes. G Fund interest is reinvested by the Board as it is received from the U.S. Treasury each business day.
Fixed Income Index Investment (F) Fund—The F Fund’s investment objective is to match the performance of the Bloomberg Barclays U.S. Aggregate Bond Index, a broad index representing the U.S. bond market. The F Fund is managed by BlackRock Institutional Trust Company, N.A. in a separate account. The F Fund invests in a bond index fund that tracks the Bloomberg Barclays U.S. Aggregate Bond Index. This broad index includes U.S. Government, asset-backed, corporate, and foreign government (issued in the U.S.) sectors of the U.S. bond market. The earnings consist of interest income on the securities and gains (or losses) in the value of the securities. The F Fund uses an indexing approach to investing. In other words, it is a passively managed fund that remains invested according to its investment strategy regardless of conditions in the bond market or the economy.
Because the F Fund returns move up and down with the returns in the bond market, your F Fund investment is subject to market risk. For example, when interest rates rise, bond prices (and thus, the returns of the index and the F Fund) fall. Conversely, in an environment of falling interest rates, bond prices, as well as the index and F Fund returns, rise. As an F Fund investor, you are also exposed to credit (default) risk, or the possibility that principal and interest payments on the bonds that comprise the index will not be paid. The F Fund is subject to inflation risk, meaning your F Fund investment may not grow enough to offset the reduction in purchasing power that results from inflation. Your F Fund investment is also exposed to prepayment risk, which is the probability that if interest rates fall, bonds that are represented in the index will be paid back early thus forcing lenders to reinvest at lower rates.
Although there are several types of risks associated with the F Fund, the overall risk is relatively low in comparison to certain other fixed income investments in the market because the F Fund includes only investment-grade securities. As a result, F Fund investors are rewarded with the opportunity to earn higher rates of return over the long term than they would from investments in short-term securities such as the G Fund.
Common Stock Index Investment (C) Fund—The C Fund’s investment objective is to match the performance of the Standard and Poor’s 500 (S&P 500) Index, a broad market index made up of stocks of 500 large to medium-sized U.S. companies. The C Fund invests in a stock index fund that fully replicates the Standard and Poor’s 500 (S&P 500) Index. The earnings consist primarily of dividend income and gains (or losses) in the price of stocks. The C Fund is a passively managed fund that remains invested according to its indexed investment strategy regardless of stock market movements or general economic conditions. Your investment in the C Fund is subject to market risk because the prices of the stocks in the S&P 500 Index rise and fall. By investing in the C Fund, you are also exposed to inflation risk, meaning your C Fund investment may not grow enough to offset inflation. While investment in the C Fund carries risk, it also offers the opportunity to experience gains from equity ownership of large and mid-sized U.S. company stocks.
The S&P 500 Index consists of 500 large to medium-sized U.S. companies representing approximately 82% of the market value of the U.S. stock market. This index provides a representative measure of U.S. stock market performance. The companies in the index represent 157 separate industries classified into 11 major groups as of December 31, 2023: Communications Services 8.6%; Consumer Discretionary 10.9%; Consumer Staples 6.2%; Energy 3.9%; Financials 13.0%; Health Care 12.6%; Industrials 8.8%; Information Technology 28.9%; Materials 2.4%; Real Estate 2.5%; Utilities 2.3%. As of December 31, 2023, the largest 100 companies in the S&P 500 represented approximately 67% of the indexes market value. The S&P 500 Index includes 369 securities traded on the New York Stock Exchange and 136 securities that are traded on the NASDAQ. The C Fund is managed by BlackRock Institutional Trust Co., N.A. in a separate account. The C Fund holds all the stocks, included in the S&P 500 Index in virtually the same weights as they are in the index. *Due to rounding, numbers may not add to exactly 100%.
The S&P 500 Top Ten Holdings as of December 31, 2023:
- Apple, Inc.
- Microsoft Corp.
- Amazon.com Inc.
- Nvidia Corp.
- Alphabet Inc. Class A
- Meta Platforms Inc. Class A
- Alphabet Inc. Class C
- Tesla Inc.
- Berkshire Hathaway Inc. Class B
- JP Morgan Chase & Co.
Small Capitalization Stock Index Investment (S) Fund—The S Fund’s investment objective is to match the performance of the Dow Jones U.S. Completion Total Stock Market Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 index. The S Fund invests in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market Index. The earnings consist of dividend income and gains (or losses) in the price of stocks. The S Fund uses an indexing approach to investing. In other words, it is a passively managed fund that remains invested according to its investment strategy regardless of conditions in the bond market or the economy. Your investment in the S Fund is subject to market risk because the Dow Jones U.S. Completion Total Stock Market Index returns will move up and down in response to overall economic conditions. By investing in the S Fund, you are also exposed to inflation risk, meaning your S Fund investment may not grow enough to offset the reduction in purchasing power that results from inflation. While investments in the S Fund carries risk, it also offers the opportunity to experience gains from equity ownership of small to mid-sized U.S. companies. It provides an excellent means of further diversifying your domestic equity holdings. The S Fund is managed by Black Rock Institutional Trust Company, N.A. in a separate account.
The Dow Jones U.S. Completion Total Stock Market Index is an index of all actively traded U.S. common stocks that are not included in the S&P 500 Index. As of December 31, 2022, the index was comprised of 3,266 common stocks. This index is designed to be the broadest measure of the non-S&P 500 domestic stock markets. The Dow Jones U.S. Completion TSM Index makes up 18% of the market value of the U.S. stock markets; the S&P 500 accounts for the other 82%. The Dow Jones U.S. Completion TSM Index is invested as of December 31, 2023, as follows: Communications Services 4.0%; Consumer Discretionary 11.4%; Consumer Staples 2.9%; Energy 4.4%; Financials 17.5%; Health Care 11.8%; Industrials 16.9%; Information Technology 19.0%; Materials 4.4%; Real Estate 6.0%; Utilities 1.8%. Note that the “Dow Jones U.S. Completion TSM Index” is so named because with the S and the C Funds your investments will cover the total value of the U.S. Stock market. *Due to rounding, numbers may not add to exactly 100%.
The primary source of earnings is the changes in the prices of the stocks, although dividend income is also a source of earnings. The Dow Jones U.S. Completion TSM Index tends to fluctuate more than the S&P 500 Index because the stock prices of the smaller companies in the index tend to react more strongly (positively and negatively) to changes in the economy. Therefore, an S Fund investment can be more volatile and potentially riskier than a C Fund investment. Although the Dow Jones U.S. Completion TSM Index is even more broadly diversified than the S&P 500 Index, losses will occur in the S Fund if the Dow Jones U.S. Completion TSM Index declines in response to changes in overall economic conditions.
The Federal Retirement Thrift Investment Board has chosen a different index which the International Stock Fund will track. At present the I Fund tracks the MSCI Europe, Australasia and Far East (EAFE) Index which provides exposure to 798 large- and mid-cap stocks in 21 developed countries. The MSCI ACWI ex USA ex China ex Hong Kong Index provides exposure to 5,621 large-, mid-, and small-cap stocks in 21 developed markets and 23 emerging markets, representing 90% of non-US market capitalization. The adjustment to the I Fund will more than double the number of countries included in the fund and will change the number of equities by 700%.
The board noted that the MSCI ACWI IMI ex USA ex China ex Hong Kong Index is expected to outperform the MSCI EAFE Index on a risk-adjusted basis over the long term.
Historical analysis confirmed that the risk-adjusted returns for the MSCI ACWI IMI ex USA ex China ex Hong Kong Index have exceeded those of the MSCI EAFE Index over the past 20 years.
The FRTIB will work with its fund managers to implement the transition from the current index to the MSCI ACWI IMI ex USA ex China ex Hong Kong in 2024.
International Stock Index Investment (I) Fund — The Federal Retirement Thrift Investment Board has chosen as the benchmark for the I Fund the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index which tracks the overall performance of the major companies and industries in the European, Australian, Asian and Far East stock markets. The EAFE Index consists of the stocks of companies in 21 countries.
Lifecycle (L) Funds – Lifecycle Funds are asset allocation portfolios with investment mixes tailored to a participants target time horizon. The target horizon is generally when the participant intends to withdraw the funds. As the withdrawal date approaches, fund’s investment mix automatically becomes more conservative (i.e., less risky). Participants who select lifecycle funds do not need to reallocate their account assets to achieve this result; the lifecycle investment models automatically reallocate the account for the participant.
The L funds provide you with a convenient way to diversify your account among the G, F, C, S, and I Funds, using professionally determined investment mixes that are tailored to different time horizons. Your “time horizon” is the date (after you leave Federal service) that you think you will need the money in your TSP account. Because it is important for each L Fund to maintain its target investment mix, the TSP will automatically rebalance each L Fund daily. Then, each quarter, the investments in each L Fund will shift to a slightly more conservative mix. In addition, experts will review the investment mixes periodically to be sure they are still appropriate.
The TSP has made adjustments to the L Funds in an effort to improve outcomes for participants who invest in them. Effective in January 2019, the Board began increasing exposure to international stocks (the I Fund) from 30% to 35% in most L Funds. The L Income Fund stock allocation (C, S, and I Funds combined) will increase from 20% to 30% over a period of up to 10 years. Finally, the L 2060 Fund began with a 99% stock allocation.
Q – What are the “L” Funds?
A – There are 10 time horizon funds, the shorter the time horizon the more conservative the investment mix, the longer the time horizon, the more aggressive the investment mix.
The L funds provide you with a convenient way to diversify your account among the G, F, C, S, and I Funds, using professionally determined investment mixes that are tailored to different time horizons. Your “time horizon” is the date (after you leave Federal service) that you think you will need the money in your TSP account. Because it is important for each L Fund to maintain its target investment mix, the TSP will automatically rebalance each L Fund daily. Then, each quarter, the investments in each L Fund will shift to a slightly more conservative mix. In addition, experts will review the investment mixes periodically to be sure they are still appropriate.
L Income is for participants who are currently living on their TSP funds. It is designed to achieve a low level of growth with a high emphasis on preservation of assets.
Unlike the other nine L Funds, the L Income Fund’s asset allocation does not change quarterly. However, like the other Funds, it is rebalanced daily to maintain its target investment mix.
L 2025 is for participants who will withdraw their money beginning 2021 and 2027. It is designed to achieve a moderate level of growth with a moderate emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Funds is adjusted quarterly. L 2025 will roll into the L Income Fund automatically in July 2025 when its allocation becomes the same as the allocation of L Income Fund.
L 2030 is for participants who will withdraw their money beginning 2028 through 2032. It is designed to achieve a moderate to high level of growth with a low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Funds is adjusted quarterly. L 2030 will roll into the L Income Fund automatically in July 2030 when its allocation becomes the same as the allocation of L Income Fund.
L 2035 is for participants who will withdraw their money beginning 2033 through 2037. It is designed to achieve a moderate to high level of growth with a low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Funds is adjusted quarterly. L 2035 will roll into the L Income Fund automatically in July 2035 when its allocation becomes the same as the allocation of L Income Fund.
L 2040 is for participants who will begin to withdraw their money after 2038 through 2042. It is designed to achieve a high level of growth with a very low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Income Funds is adjusted quarterly. L 2040 will roll into the L Income Fund automatically in July 2040 when its allocation becomes the same as the allocation of L Income Fund.
L 2045 is for participants who will withdraw their money beginning 2043 through 2047. It is designed to achieve a high level of growth with a low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Funds is adjusted quarterly. L 2045 will roll into the L Income Fund automatically in July 2045 when its allocation becomes the same as the allocation of L Income Fund.
L 2050 focuses more on growth than on preservation of assets. The Fund’s allocation in the G, F, C, S & I Funds is adjusted quarterly. Like all the L Funds, as the L 2050 Fund ages, its investment mix will gradually shift to more conservative investments.
L 2055 funds investment objective is to achieve a high level of growth with a very low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Funds is adjusted quarterly. L 2055 will roll into the L Income Fund automatically in July 2055 when its allocation becomes the same as the allocation of L Income Fund.
L 2060 funds investment objective is to achieve a high level of growth with a very low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Funds is adjusted quarterly. L 2060 will roll into the L Income Fund automatically in July 2060 when its allocation becomes the same as the allocation of L Income Fund.
L 2065 funds investment objective is to achieve a high level of growth with a very low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Funds is adjusted quarterly. L 2065 will roll into the L Income Fund automatically in July 2065 when its allocation becomes the same as the allocation of L Income Fund.
Q – What are the administrative costs for the TSP?
A – The administrative expenses of investing in the TSP funds are extremely low.
TSP Administrative Expenses
G Fund Net Administrative Expense
$0.500/$1,000 account balance 0.050% (5.0 basis points)
F Fund
Total Expense Ratio
$0.480/$1,000 account balance 0.048% (4.8 basis points)
C Fund
Total Expense Ratio
$0.480/$1,000 account balance 0.048% (4.8 basis points)
S Fund
Total Expense Ratio
$0.790/$1,000 account balance 0.079% (7.9 basis points)
I Fund
Total Expense Ratio
$0.540/$1,000 account balance 0.054% (5.4 basis points)
L Fund Expense Ratios
L Income
Total Expense Ratio
$0.500/$1,000 account balance 0.050% (5.0 basis points)
L 2025
Total Expense Ratio
$0.500/$1,000 account balance 0.050% (5.0 basis points)
L 2030
Total Expense Ratio
$0.520/$1,000 account balance 0.052% (5.2 basis points)
L 2035
Total Expense Ratio
$0.520/$1,000 account balance 0.052% (5.2 basis points)
L 2040
Total Expense Ratio
$0.530/$1,000 account balance 0.053% (5.3 basis points)
L 2045
Total Expense Ratio
$0.530/$1,000 account balance 0.053% (5.3 basis points)
L 2050
Total Expense Ratio
$0.530/$1,000 account balance 0.053% (5.3 basis points)
L 2055
Total Expense Ratio
$0.530/$1,000 account balance 0.053% (5.3 basis points)
L 2060
Total Expense Ratio
$0.530/$1,000 account balance 0.053% (5.3 basis points)
L 2065
Total Expense Ratio
$0.530/$1,000 account balance 0.053% (5.3 basis points)
Q – How often can I move my account balances among the funds?
A – You can exercise two moves per month, after that you can move money into the G Fund only. While you are employed or even after retirement you may move the money in the TSP among the investment funds by using the Thrift Line (1-877-968-3778) or using the Thrift Web Site (www.tsp.gov).
There are 2 ways to move money within your account:
- A reallocation (previously “interfund transfer”) will move the money already in your account among TSP investment funds. When you make a reallocation, you choose the percentage you want invested in each TSP fund.
- As a new option, a fund transfer will move money from one or more specific funds to another specific fund or funds without affecting the rest of your account. You can determine a dollar amount or percentage you want to transfer. Fund transfers are also how you move money to and from the mutual fund window.
Reminder: If you request to change how you invest money already in your account — through a reallocation or fund transfer — before noon eastern time on any business day, your request will ordinarily post that business day. A request made at or after noon eastern time on any business day will ordinarily post on the next business day.
Q – Isn’t there an option to invest some of my TSP account outside of the TSP?
A – The Thrift Board has launched a “window” allowing account holders to put money in outside mutual funds. There will be charges associated with this option. There will be a $95 annual maintenance fee, a $28.75 fee per trade, and an annual fee “designed to guarantee that the availability of the mutual fund window will not indirectly increase the share of the TSP administrative expenses borne by participants who choose not to use the mutual fund window.” That fee will be initially $55 and re-evaluated every three years. There are restrictions (1) a minimum initial transfer of $10,000 and a limit of 25% of the account balance being invested in the mutual fund. The 25% limit applies to the initial transfer and all additional transfers.
The money will first go into a money market fund then moved to one or more of the available mutual funds. Transfers in or out will count against the maximum of two per month; additional transfers would be into the G fund only.
New investments would have to be invested in the TSP’s fund then transferred into the mutual funds. Further, withdrawals could not be taken directly from a mutual fund but would have to be transferred into TSP funds.
Account holders who utilize the “window” will be required to sign an acknowledgement of risk.
Q – Should I move my money out of the TSP when I retire?
A – You do not have to move your money out of the TSP when you retire. Be careful on what you decide to do. If you withdraw the money it is taxable. Further, if you retire before age 55 and withdraw the TSP balance, you could also pay a 10% early distribution penalty.
If you do a plan-to-plan transfer and the money is moved into an IRA or qualified pension plan there will be no penalty and the taxes won’t be due until you withdraw the money.
Focus on the administrative costs for managing the investments, the risk, and rate of return before you decide to move your money from the TSP.
Additionally, if you retire at age 55 or beyond age 55, you can access your TSP account without any early distribution penalty using any withdrawal method. An IRA can be accessed only through actuarially projected lifetime payments or by converting it to an annuity prior to age 59 ½ , otherwise the 10% early distribution penalty would apply.
Q – Can I access my money while I am still working?
A – TSP participants who are employed by the Federal Government have two in-service withdrawals:
- Age-based in-service withdrawals for participants who are 59½ or older;
- Financial hardship in-service withdrawals for participants who document financial hardships.
Age-Based In-Service Withdrawal at age 59½ or later—this is an option that requires no documentation, other than of age. The withdrawn amount will be treated as taxable income unless transferred into an IRA; however, there would be no early withdrawal penalty.
With a Financial Hardship Withdrawal you must document the financial hardship and pay taxes, and the early withdrawal penalty if you are under 59½, (there are some exceptions to the penalty).
The above options are withdrawals not loans. You cannot return the money to your account, therefore the TSP account is permanently depleted and you lose the future earnings on the amount withdrawn. So long as the account holder is in pay status, a loan should be considered in lieu of an in-service withdrawal.
Q – Isn’t there a loan program?
A – While you are employed by the Federal government you have the option of taking a loan from your TSP account. There are two types of loans: general purpose (5-year repayment) or primary residence (15-year repayment). You may borrow from your own contributions and the interest on them.
You will be borrowing your money from the TSP not using your money as collateral. You may pay the loan back through payroll deductions, and interest will be charged. The interest rate for the life of the loan is the latest available interest rate on the Government Securities Fund at the time your loan application is received at the TSP Service Office. The interest you pay on the loan will go into your TSP account, along with the repayments of loan principal.
Q – Why do I have to pay the loan back with interest?
A – You pay the loan back with interest to “make your account whole”. While the money was loaned to you, it was not earning interest for you. By paying interest on the loan at the G fund rate you are to some extent, making that lost earnings whole.
Q – Can I take a loan after I am retired?
A – No, you cannot take a loan after retirement. However, if you have an open loan you can continue making payments for the life of the loan as long as you keep the loan current.
Q – What are my withdrawal options?
A – Upon separation from Federal employment you do not have to elect any withdrawal method. In fact you can leave all of your money in the TSP and continue to manage it until April 1 following the year you attain age 73 or time of retirement if later. At 73 or retirement if later you will have to take a minimum distribution, the balance of your money can remain in the TSP under your management (the age at which RMDs are required will increase to 75 beginning in 2033).
There are three withdrawal concepts:
- Partial Withdrawal
- Installment Payments
- Life Annuity
Your Withdrawal Options
TSP Installment Payments
You can choose to receive payments from your account monthly, quarterly (every three months), or annually. Your payments will continue, unless you stop them, until your total account balance equals zero. This is true even if you choose to have the payments come from your traditional balance first or from your Roth balance first. When you run out of money in your chosen source (traditional or Roth), payments will continue from the source you didn’t choose.
There are two ways of setting the payment amount: payments of a fixed dollar amount and payments based on life expectancy.
Fixed Dollar Amount
You can choose the amount you want to receive in each payment as long as it’s at least $25.
Life Expectancy
You can have the Thrift Board compute your installment payments based on IRS life expectancy tables. Your initial payment amount will be based on your age and your account balance at the time of the first payment. Life expectancy payments are calculated using your entire account balance even if you choose to withdraw from your Roth balance first or your traditional balance first. If you choose life expectancy-based installment payments in combination with a partial withdrawal, an annuity purchase, or both, your payment calculation will be made after the other funds are removed from your account. Each January, the TSP will recalculate the amount of your installment payment. The recalculation will be based on your age and your account balance at the end of the preceding year.
Use the “TSP Installment Payment Calculator” at tsp.gov to estimate the amount of your life expectancy payments or to see how long payments of a fixed dollar amount would last. Remember that investment gains or losses and other account activity could cause your account balance to increase or decrease, which could increase or decrease either the amount of your life-expectancy payments or the duration of your fixed-dollar-amount payments.
Your agency must notify the TSP that you have separated and provide the date of your separation. The TSP cannot process your withdrawal request until your agency has provided your separation information.
When you are ready to take money out of the TSP go to www.tsp.gov/login “My Account” for the most current editions of the withdrawal forms.
The TSP Modernization Act of 2017 gives account holders more flexibility on their withdrawal options.
Under the new withdrawal policies you have more options for how and when you can access money from your TSP account.
Roth, Traditional Tax-Deferred, or Both
You can choose to have your withdrawals taken only from your Roth account, only from your Traditional Tax-Deferred account or a combination. You can also choose to have the Thrift Board calculate your withdrawals proportionally based on your account balances in the Roth and Traditional Tax-Deferred account.
Withdrawal Deadline
You will never be required to make a full withdrawal election. You will still need to receive IRS-required minimum distributions (RMDs). You can satisfy the requirement by taking a partial withdrawal or installment payments. If you take no action or just don’t withdraw enough to meet your RMD, the TSP will automatically send you the remaining RMD amount.
Q – What are the annuity options?
A – Single Life Annuity—Level Payment: The retiree/separated employee may elect to receive equal monthly payments for life. Benefits end with the death of the retiree/separated employee.
Single Life Annuity—Increasing Payment: The retiree/separated employee may elect to receive monthly payments which increase at a set rate yearly. Monthly checks are initially lower, then increase over time to help keep up with inflation. Benefits end with the death of the retiree/separated employee.
Joint & Survivor Spouse Annuity — Level Payment: The retiree/separated employee may elect to receive equal monthly payments for life plus a monthly benefit payable to the survivor spouse.
Joint & Survivor Spouse Annuity— Increasing Payment: The retiree/separated employee may elect to receive monthly payments which increase at a set rate yearly plus a monthly benefit payable to the survivor spouse.
The joint and survivor spouse annuity provides a survivor annuity of either 100% or 50% to the survivor no matter who dies first.
Joint & Survivor Annuity—Other: The retiree/separated employee may elect to receive equal monthly payments for life plus a monthly benefit payable to an insurable interest individual or to a former spouse.
If you name a joint annuitant ‘other’ who is more than 10 years younger than you, you must choose a joint life annuity of 50%. There is an exception if the ‘other’ is a former spouse to whom all or a portion of your TSP account is payable pursuant to a retirement benefits court order.
There are some additional features which may be added to the annuity:
- Cash refund assures that any of your principal remaining at your death will be paid to your beneficiary in a lump-sum;
- 10-year certain payout assures that you receive annuity payments for as long as you live. However, if you die within 10 years of the start of your annuity, your beneficiary will receive the payments for the remaining portion of the 10-year period.
Q – I am married do I have to provide something to my spouse from my TSP?
A – If you are in CSRS, married and making a full or partial withdrawal, your spouse will be notified regardless of the amount of the withdrawal.
If you are in FERS and married, the requirements for a 50% survivor’s annuity (level payment, no cash refund) apply. Your spouse can waive their rights to the survivor’s annuity, but their signature must be notarized. If you are making a partial withdrawal, changing the frequency or amount of your payments, requirements for spousal consent apply, regardless of the amount you are requesting or the balance of the account.
Q – Can I take an amount out of TSP after I retire but not take the whole account balance?
A – Yes, after you leave Federal service, you may take partial withdrawals, even if you are receiving installment payments.
You may use any combination of withdrawal options to make a post-retirement withdrawal.
Q – Can I move other money into my TSP?
A – You can transfer any money that is in your name and totally tax deferred into the tax-deferred TSP. You can also transfer any Roth 401(k), 403(b), or 457(b) into the TSP Roth 401(k). You CAN NOT transfer a Roth IRA into the Roth 401(k). You can do the transfer while employed or after retirement so long as you have not started taking distributions. You would use the TSP 60 form to transfer tax-deferred money into the TSP and the TSP 60R form to transfer after tax money into the Roth 401(k)..
Q – Can I move my TSP into a Roth 401(k) IRA?
A – You can move your TSP account into a Roth 401(k) IRA after retirement. However, the TSP will be treated as taxable income before it is invested in the Roth 401(k) IRA, which then will grow tax free.
Q – Are there penalties if I withdraw money before I am 59½?
A – The IRS imposes 10% penalty on amounts that are paid out of the TSP if you separate or retire before the year in which you attain age 55, and withdraw the account balance in a single payment or a series of payments. In this case, all payments received before age 59½ would be subject to the 10% early withdrawal penalty.
Q – Are there exceptions to the penalty?
A – Yes, the penalty does not apply to a series of monthly payments based on actuarially projected life expectancy, nor is it imposed on annuity payments, payments made because of death, or payments made to disability retirees.
There is no penalty if the employee retires during, or after, the year of attainment of age 55 and for hazardous duty employees who are eligible to retire.
Q – Are there specific requirements or restrictions after I have started receiving the actuarially projected life expectancy payments?
A – Yes, in order to avoid the 10% early distribution penalty, you must continue to receive the actuarially projected life expectancy payments for 5 full years, or until age 59½, whichever is the LATER.
Q – Is there a point in time when I must withdraw all of my money from the TSP?
A – There are IRS Minimum Distributions which require that April 1 following attaining age 73 (increasing to age 75 in 2033), you take a distribution from your TSP and claim the distribution as taxable income. They do not require that you take the full account balance.