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Leaving Your Money in the TSP

After you leave federal service, you can leave your entire account balance (as long as it is $200 or more) in the TSP until April 1 of the calendar year after you reach age 72 (or the year following the year you separate from federal service, if later), after which you must take certain minimum distributions as described below. (Note: The threshold age was 70 1/2 for those who reached that age before the end of calendar year 2019). The minimum distribution require- ment applies to both traditional and Roth balances, for those who have both.

Note: The requirement was suspended for calendar year 2020 by P.L. 116-136 of March 27, 2020, retroactive to the beginning of the year. Account holders who otherwise would have been required to begin or continue taking such distributions did not have to do so, and the TSP did not make automatic distributions to account holders who otherwise would have been subject to them to meet the requirement. Further, those who had taken such distributions for the year were allowed to redeposit them into the TSP, an IRA or other employer-sponsored retirement savings plan up to August 31, 2020. See www.tsp.gov/covid-19. The policies below applied in prior years and apply again in 2021 and after unless again suspended.

To make a withdrawal election, submit Form TSP-99, Withdrawal Request for Separated and Beneficiary Participants, available only online at www.tsp.gov/forms.

Restrictions on Leaving Your Money in the TSP

TSP participants who want to leave their investments and earnings in a TSP account should keep the following rules in mind:

Automatic Cashout—If when you leave service your account balance is less than $200, your account will be automatically paid to you in a single payment; if the amount is less than $5, it will be forfeited.

Investments, Loans and Court Orders—After you leave federal service you cannot make any additional investments into your account although you can continue to change the way money in your account is allocated among the TSP investment funds by making interfund transfers. You also can no longer borrow from your account. If you have an outstanding loan at the time you separate, it must be repaid or a taxable distribution will be declared on any portion that is taxable on withdrawal. Until the loan is closed, you will not be able to make a withdrawal. In addition, you must resolve any court orders against your account before you can make a withdrawal.

Required Minimum Distributions—If you do not withdraw your account balance or begin receiving payments from your account by April 1 of the year following the year you become age 72 (70 1/2 for those who reached that age before the end of calendar year 2019) or the year following the year you separate from federal service, if later, the TSP is required to make a required minimum distribution (note: effective in September 2019, a former require- ment to make a full withdrawal decision by that date no longer applies; account holders now are never required make a full withdrawal election). Beneficiary participants must receive these distributions beginning on the later of the end of the year following the year in which the participant died, or the end of the year in which the participant would have reached age 72.

Note: This requirement was canceled for calendar year 2020. See The CARES Act in Chapter 14, Section 1.

A minimum distribution will be calculated based on your account balance and your age, using the IRS Uniform Lifetime Table. The TSP will notify you before this situation applies to you and send you the notice Important Tax Information about your TSP Withdrawal and Required Minimum Distributions.

If you are separated and receiving installment payments from your TSP account when you turn 72 (70 1/2 for those who reached that age before the end of calendar year 2019), your payments will be used to satisfy the minimum distribution requirement. If the total amount of your payments does not satisfy the requirement, the TSP will issue a supplemental payment for the remaining amount in December of that year.

The minimum distribution payment cannot be transferred or rolled over. This means that if you withdraw your account in a single payment or installment payments in a year to which the required minimum distribution rule applies, you cannot transfer the entire payment(s) to an IRA or an eligible employer plan. Instead, before transferring any money, the TSP will calculate your required minimum distribution amount and send it to you.

For detailed rules regarding minimum distributions, see the TSP publication Required Minimum Distributions, available through the ThriftLine (see Section 7 of this chapter) and www.tsp.gov/forms.

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