Understanding the biggest benefit of the TSP Modernization Act

By now you have probably heard of the TSP Modernization Act. If you have done a little bit of homework and reading up on it, you may have realized there are many changes being implemented. While many others are talking about the various options now available to you, there is something very important that could potentially change your entire retirement outlook that many people aren’t paying attention to.

Let’s first take a step back to understand why the TSP Modernization Act was passed. Many Federal employees have been complaining for years that their colleagues in the private sector had a larger range of investment and withdrawal options. Years of exit interviews and surveys later, this new Act addresses these specific limitations of the TSP.

So, what does this mean for you?

Well, that depends on a few factors, mainly your current age. Only those 59 ½ or older will be able to take advantage of the new policies affecting In-Service Withdrawals. You can take advantage of the Hardship Withdrawals and Post-Separation Withdrawals at any age. In this article, we will be focusing only on In-Service Withdrawals.

What is an In-Service Withdrawal?

If you are 59 ½ or older, actively employed and participating in your TSP, you can start making partial withdrawals out of your TSP accounts. These withdrawals can also be transferred to a qualified retirement account with potentially no tax consequences. For example, you can transfer a Traditional TSP to a Traditional IRA and a Roth TSP to a Roth IRA. Please note that transferring a Traditional TSP to a Roth IRA would produce tax consequences.

Quick Fact: The TSP Modernization Act (Public Law 115-84) was passed on November 17, 2017, and affects all Federal Employees as of September 15, 2019.


Under the old policy you were limited to one partial withdrawal in your lifetime – either an age-based in-service withdrawal (when you’re 59 ½ or older) or one partial post-separation withdrawal. You were also required to take your withdrawals on a pro-rata basis from each account. For example, if you had 80% of your retirement funds in a Traditional TSP and 20% in a Roth TSP, your withdrawal would need to reflect the same percentage allocation. So, if you took our $1,000, $800 would come from the Traditional TSP, and $200 would come out of the Roth TSP.

Under the new policies:

  • You will be able to take up to four (4) age-based in-service withdrawals each calendar year, as long as they are at least 30 days apart.
  • You will now have the option to take your withdrawal only from your Traditional or your Roth balance.
  • Taking age-based in-service withdrawals will not prevent you from taking unlimited post-separation partial withdrawals.
  • You can rollover the money you withdraw into a Self-Directed IRA (Traditional or Roth), with two major benefits:
    • A much wider choice of investments for your retirement assets.
    • Unfettered access--no more 30-day waiting periods between withdrawals and slow processing of your requests. You get unlimited and rapid access to your retirement funds.

This means that you can begin to move your funds from your TSP accounts to other investment options while you are still employed in Federal Service. And once the money is out of the TSP, you have real flexibility with moving and utilizing your funds as you decide.

So, does this mean you should rush to your Financial Planner and start making withdrawals right away? Or go buy a bunch of gold? Or invest in cryptocurrency or real estate?

We would suggest not. Instead, we recommend you learn more about your retirement options, investment strategies, market risks, fees, and risk mitigation strategies.

Yes, you now have more choices, but that does not guarantee your financial success. Be savvy, keep learning, and invest wisely.

Will you be taking advantage of age-based In-Service Withdrawals?

2021 Digital Almanac

Stay Connected

Latest Forum Posts

Ask the Expert

Have a question regarding your federal employee benefits or retirement?

Submit a question