With the TSP Modernization Act going into effect on September 15, 2019, there are new withdrawal rules. These expanded options greatly enhance your ability to access your money both before and after you are eligible for tax and penalty-free withdrawals.
The major changes are:
- Choose if your withdrawals come from traditional, Roth, or both balances
- Up to four in-service withdrawals per year
- Multiple post-separation partial withdrawals
- No longer must make a full withdrawal at 70 ½.
- Can take monthly, quarterly, or annual payments and make changes to it anytime
These are a summary of the big changes, but there is plenty more to know about each one of these and how to fully take advantage of them. We will do a deeper dive into each topic and add some more info on new withdrawal options from the TSP Modernization Act.
Here is a pamphlet on a summary of the changes from the TSP.gov website.
Withdrawing from Traditional, Roth, or Both
Before these changes, whenever you made a withdrawal from your TSP, it came out of both your Roth and your traditional balances proportionally.
What that means is, if 25% of your total balance was in your traditional TSP, when you took a $1000 withdrawal, 25% of that, or $250, would be from your traditional TSP balance, and the other $750 from Roth TSP.
These both are treated different for tax reasons. If you withdrew this after separating from federal service and after 59 ½ years old, the $250 from traditional would be taxable income. The $750 from your Roth TSP would not be taxable income.