The House is scheduled to vote Wednesday to expand withdrawal choices for investors in the Thrift Savings Plan, in what would be one of the most significant changes to the 401(k)-style retirement savings program since its inception 30 years ago.
The bill primarily addresses withdrawals by investors after they have left the government for retirement or for other reasons, but it also would allow additional withdrawals by investors who are still working past age 59½, when a tax penalty on withdrawals no longer applies.
The measure, sponsored by Reps. Elijah E. Cummings (D-Md.) and Mark Meadows (R-N.C.), is being brought to a vote under a shortcut procedure that typically signals an expectation that the bill will pass easily.
“We are very pleased that the House will be considering H.R. 3031 on the suspension calendar and very grateful to Congressmen Cummings and Meadows for their leadership. This bill will meaningfully improve TSP participants’ ability to access their TSP savings in the manner in which they choose,” TSP spokeswoman Kim Weaver said in an email.
The 5.1 million TSP account holders — current and former federal and military personnel — may withdraw their money in one of three ways, or in combination: as an annuity or in a lump sum or in equal monthly payments. Under the latter two options, money can be transferred into IRAs or other tax-favored retirement accounts to continue shielding it from taxes, subject to IRS rules requiring certain payouts to those older than 70½.
In practice, large numbers of TSP investors transfer their money out and close their accounts after leaving federal employment or the military — four-tenths do so just within the first year. A survey by the TSP governing board showed that the limited range of withdrawals was a main reason.
In asking Congress to expand those choices, the board argued that even though account holders cannot make additional investments after separation, by leaving their funds with the TSP they could continue to benefit from features including the program’s low investment fees.
Under policy dating to the program’s beginning, investors may take only one partial withdrawal after separation and the next withdrawal must designate a decision for the remaining amount. The bill would allow multiple partial withdrawals and further would allow more tailoring of the equal payment option. Account holders could choose quarterly or annual as well as monthly payments, change payments at any time rather than just once a year, or stop them while leaving the rest in the account, also subject to mandatory withdrawal rules.
The measure further would allow those past age 59½ to take multiple partial withdrawals while still employed. At present, only one is allowed and those who take one lose the option of taking a partial withdrawal after separation.
A similar bill is pending in the Senate.