1

The Thrift Savings Plan – Changes in the Retirement Accounts

New Changes in Retirement Accounts for US Federal Employees

The Modernization Act has recently managed to bring about certain progressive changes to the
TFS, particularly in line with the overall impact it has on the US Federal Employees, and the
subsequent changes in the Retirement Accounts. The overall changes that can be expected as a
result of this act, are mentioned below:

 Post-Separation Withdrawals:
Previously, it is seen that all the TSP accounts could take just one partial withdrawal in their
life. However now, if the employee has discontinued from Federal Service, he is allowed to
take as many withdrawals as he wants. However, he cannot proceed with more than one
withdrawal over a course of 30 days.

Under this premise, it can be seen that as per the amendments, it is proposed to eliminate the
overall restriction that is placed on partial and post-separation withdrawals. This is
specifically for those who have signed up for age-based, in-service withdrawals. The FRTIB
has further committed that they will propose separated participants to exercise their right to
carry out post-separation withdrawals without any constraint, or limit. Therefore, the inherent
change allows the people to have a much needed degree of flexibility regarding the options
that they have, so that they are at a liberty to choose as per their convenience.

This is actually a significant relief for the US Federal Employees, because of the fact that it
covers for unforeseen circumstances, in the sense that they can save themselves from the
penalty cut in case of pre-retirement encashment. In case of an unforeseen circumstance,
employees can cash out just the required chunk of their overall amount, without facing
deductions.

 Age-Based, In-Service Withdrawals

As per the previous rule, a TSP participant, who was greater than 59 years and 6 months, and
was not separated from Federal Service had the option, a one-time election to receive all part
of his account balance in the form of a single sum payment.

However, it is not proposed that participants will be able to take as many as 4 (four) age-
based, in-service withdrawals in a given calendar year. However, the 30-calender-day
processing period, which will be applicable to partial post-separation will continue to hold.
Additionally, the proposal also states that for all the TSP accounts that an individual has,
these limits and contingencies will not be aggregated, and will continue to apply separately
for all of them.

 Discretion over Choosing Source of Withdrawal

Under the new proposal, US Service Federal Employees now have the discretion to choose
the source of their withdrawals. They can choose whether their withdrawal can come from
Roth balance, traditional balance, or a proportional mix of both the plans.
 2

The overall impact this particular aspect will have on the people is the fact that lesser
amounts will now be paid towards tax contributions, if they are able to strategically devise a
mix between Roth distribution and a traditional distribution.

 No need for withdrawal election after 70 years, 6 months

Previously, it was required for retirees to make final decisions regarding how they wanted to
withdraw from their TSP, upon turning 70 years, and 6 months. They were required to
choose the monthly payments that were supposed to be made, or any amount in any division
which they thought was feasible for them.

However, under the new proposal, the retirees now have the option to change their
withdrawal amount, at any time, after reaching 70 years and 6 months. They can start
withdrawing any amount they desire, as per their desire. This is actually beneficial for the US
Federal Employees, because there are no binding arrangements they cannot get out of.
Previously, these people mostly moved their balances to the IRA in order to get greater
flexibility. However, they do not necessarily have to do that now. This is because they can
benefit from the low-cost options that exist without having to worry about not having the
option to change their elections, once they have chosen.

 Separated Participants
Upon separation, the employees now have the option to make their withdrawals monthly,
quarterly, or on an annual basis, as per their convenience. Previously, if installment
distributions were supposed to be made from TSP, they could only be done on a monthly
scale.

 Flexibility in changing installment plans at any time

Before this proposed amendment, TSP participants could only make the desired changes in
the withdrawal options during the “Open Season” in October. However, this amendment has
facilitated the employees by giving them the option to modify, or change their installment
plans at any point in time throughout the year. This will greatly benefit the employees in the
form of possibly increased tax savings over time.

Overall, it can be seen that the changes that have been proposed in the retirement accounts
can greatly be seen as efforts to facilitate the account holders, by giving them greater
leverage to plan their finances, as per their desire. The increased flexibility can be seen as
one of the major advantages which can be amortized by the people who want to control these
aspects as per their situation at the given point in time.