Author Topic: TSP Modernization Act of 2017 becomes law; brings welcome changes to TSP  (Read 5050 times)

elysianfields

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The TSP Modernization Act will allow the Federal Retirement Thrift Investment Board (FRTIB) to permit multiple age-based partial withdrawals, as well as multiple post-separation partial withdrawals.  Previously, the law only permitted a single partial age-based withdrawal, followed by one full post-separation withdrawal.  Consequently, many TSP participants were rolling their balances out to IRAs because IRAs provide more flexibility in accessing the funds post-separation.

These changes will make me more likely to leave funds in my TSP and perhaps also roll IRA funds into the TSP to take advantage of the TSP funds' rock-bottom expense ratios (.004% in the C, .041% in the S, and .014% in the I Fund).  Of course, YMMV.

Sources:

http://www.govexec.com/pay-benefits/2017/11/trump-signs-tsp-modernization-act-law/142658/

https://www.fedsmith.com/2017/10/11/house-passes-tsp-modernization-act/

FIKristen

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Re: TSP Modernization Act of 2017 becomes law; brings welcome changes to TSP
« Reply #1 on: November 18, 2017, 07:53:37 AM »
Wow!  Thanks for the heads up.    To clarify, can I add non-TSP retirement funds into the TSP now?   

marion10

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Re: TSP Modernization Act of 2017 becomes law; brings welcome changes to TSP
« Reply #2 on: November 18, 2017, 08:20:42 AM »
Very happy to see this. I hope the new regulations get implemented quickly. My husband is likely retiring in Jan 2018 and I will be in 2019.

elysianfields

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Re: TSP Modernization Act of 2017 becomes law; brings welcome changes to TSP
« Reply #3 on: November 18, 2017, 11:18:54 PM »
Wow!  Thanks for the heads up.    To clarify, can I add non-TSP retirement funds into the TSP now?

One always could roll funds from a previous retirement plan or an IRA into the TSP, that has not changed.

Very happy to see this. I hope the new regulations get implemented quickly. My husband is likely retiring in Jan 2018 and I will be in 2019.

FRTIB has two years to implement the new law, and I think they'll move rather more quickly.  They're well aware of the need for these changes and keeping more investors and their funds in the TSP works to the FRTIB's advantage as well.
« Last Edit: November 18, 2017, 11:21:32 PM by elysianfields »

simonsez

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Re: TSP Modernization Act of 2017 becomes law; brings welcome changes to TSP
« Reply #4 on: November 21, 2017, 01:41:01 PM »
Now just do away with the proportional withdrawal rule and we'll really be getting somewhere!

Fomerly known as something

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Re: TSP Modernization Act of 2017 becomes law; brings welcome changes to TSP
« Reply #5 on: November 22, 2017, 04:32:35 AM »
Unfortunately, I've been told by TSP that proportional distribution is an IRS rule.  However, if one has a military TSP and a civilian TSP one has 2 separate TSP accounts.  So one could keep one Roth and one Trad.

kendallf

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Re: TSP Modernization Act of 2017 becomes law; brings welcome changes to TSP
« Reply #6 on: November 22, 2017, 08:11:41 AM »
I'm quite happy that this has been enacted; it's been in the works for at least a couple of years.  Now we'll see how long it takes the TSP Board to implement the changes.  I expect we'll see some fees and perhaps maximum frequency limits aimed at keeping people from changing things up daily and driving administrative costs sky high.  I'm OK with that.

simonsez

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Re: TSP Modernization Act of 2017 becomes law; brings welcome changes to TSP
« Reply #7 on: November 22, 2017, 09:14:47 AM »
Unfortunately, I've been told by TSP that proportional distribution is an IRS rule.
Did they offer you IRS sources for this?  I can't find anything by the IRS that states this other than for unqualified Roth 401k plans that will have a proportional withdrawal of contributions and earnings but this is different issue from what is being discussed.  I've only ever been able to find this proportional rule on TSP sites.  It is weird the TSP wouldn't directly reference the IRS rule they are following.

It was stated the 401k and Roth 401k are separate accounts on multiple websites but didn't find that explicitly on the IRS website.  Surely there is a non-fed on this board that is retired with a 401k and Roth 401k that can tell us the answer.

Edit: Just called TSP and operator said the proportional rule is a TSP construct.  Guess it depends on who you talk to!
« Last Edit: November 22, 2017, 09:26:12 AM by simonsez »

Cognitive Miser

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It appears proportionality is going away.  (This doesn't apply to me; Roth TSP didn't exist until after I separated from Federal service.)

The TSP's news page points to a pdf (also linked) that says "By the way, in addition to the changes made by the new law, we’re also adding the ability to specify how much of your withdrawal should be Roth and how much should be traditional; withdrawals currently come out pro rata from both sources."

https://www.tsp.gov/whatsnew/Content/index.html
https://www.tsp.gov/PDF/formspubs/tspfs10.pdf

But... I'm way more interested in the fact that I could potentially take more than one partial withdrawal!  This means I could actually use my TSP account in my Roth ladder!  Previously I was looking at a HUGE tax bill for my one partial withdrawal, which I've been trying to figure out how to pay for.  You would not believe the time I've spent manipulating my spreadsheet!  (Off to re-consider my Roth ladder with multiple TSP withdrawals!)

aboatguy

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I continue to be underwhelmed by my TSP options.  If the proportionality rules don't go away and the ability to treat my Roth and pretax  separately I'll be rolling my TSP into my vanguard account quickly following my resignation. 

To be honest the Fidelity 401K from my previous civilian employer had much more flexibility and I now regret that I closed it out and rolled the Roth and Pretax balances into the TSP where they are lumped into one pot.

Phenix

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They really need to split the Traditional and Roth TSPs into 2 seperate accounts and allow federal employees to choose which asset allocation they would like in each account.
Is that how it works with companies outside of the federal government?  Are your 401k plans with a Roth option a completely seperate account where you can have one asset allocation in your Roth and one for your traditional?

Cognitive Miser

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They really need to split the Traditional and Roth TSPs into 2 seperate accounts and allow federal employees to choose which asset allocation they would like in each account.
Is that how it works with companies outside of the federal government?  Are your 401k plans with a Roth option a completely seperate account where you can have one asset allocation in your Roth and one for your traditional?
There was no Roth option in the TSP when I was a Fed, so I started my Roth with Vanguard.  It's funded with after-tax dollars, after all.  I usually deposited a lump sum once a year.
My current privately-held company offers a 401k but no Roth, so I still have the same Roth account.
I suppose you lose the advantage of a payroll deduction (and lower fees), but you gain flexibility.  As long as your total contributions don't bust the yearly limit, I can't imagine why you couldn't go outside the TSP for your Roth account.

simonsez

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They really need to split the Traditional and Roth TSPs into 2 seperate accounts and allow federal employees to choose which asset allocation they would like in each account.
Is that how it works with companies outside of the federal government?  Are your 401k plans with a Roth option a completely seperate account where you can have one asset allocation in your Roth and one for your traditional?
There was no Roth option in the TSP when I was a Fed, so I started my Roth with Vanguard.  It's funded with after-tax dollars, after all.  I usually deposited a lump sum once a year.
My current privately-held company offers a 401k but no Roth, so I still have the same Roth account.
I suppose you lose the advantage of a payroll deduction (and lower fees), but you gain flexibility.  As long as your total contributions don't bust the yearly limit, I can't imagine why you couldn't go outside the TSP for your Roth account.
A Roth 401k is different than a Roth IRA.  Roth TSP is a Roth 401k.

aboatguy

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They really need to split the Traditional and Roth TSPs into 2 seperate accounts and allow federal employees to choose which asset allocation they would like in each account.
Is that how it works with companies outside of the federal government?  Are your 401k plans with a Roth option a completely seperate account where you can have one asset allocation in your Roth and one for your traditional?

I had a non federal job for about 2 years and my ROTH 401k was separate from my pretax, just like in my IRAs.  That allowed different assets / asset allocation for Roth 401k and traditional 401k

In hindsight I should have rolled my Roth 401k to Vanguard instead of into the TSP.
Mike

simonsez

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Yeah, the proportionality going away and multiple partials are huge!

https://www.tsp.gov/PDF/formspubs/tspfs10.pdf

Same link from cognitive miser but bears repeating for feds out there.

September 2019 is the changes go into effect.

sol

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Is the option for multiple (4x per year at least 30 days apart) partial withdrawals available to everyone, or only to age-based (59.5+) withdrawals?

I ask because it would surely make the Roth IRA pipeline method much easier to cut out the step where you have transfer your TSP to a traditional IRA that allows annual rollovers.

simonsez

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Is the option for multiple (4x per year at least 30 days apart) partial withdrawals available to everyone, or only to age-based (59.5+) withdrawals?

I ask because it would surely make the Roth IRA pipeline method much easier to cut out the step where you have transfer your TSP to a traditional IRA that allows annual rollovers.
It looks like multiple withdrawals are available to EVERYONE provided they are separated from federal service.  To make an in-service withdrawal penalty-free, you still need to be 59 1/2 or older (which I know isn't that relevant here).

I'm just pasting this from that link.  Looks like 2nd bullet point is the relevant one for ya.  Bolding is mine:
Partial Withdrawals
Right now, you’re limited to one partial withdrawal in
your lifetime—either an age-based in-service withdrawal
(when you’re 59½ or older) or a partial post-separation
withdrawal. Under the new policy,
• you’ll be able to take up to four age-based inservice
withdrawals per calendar year1
;
• there will be no limit of the number of partial
withdrawals you can take after separating from
federal service (except that you won’t be able to
take more than one every 30 days);
• you’ll be able to take partial withdrawals while
you’re receiving post-separation installment
payments; and
• having taken age-based in-service withdrawals
will not prevent you from taking post-separation
partial withdrawals.

elysianfields

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So given the liberalization of the withdrawal rules on September 15, I'm considering rolling some IRAs into TSP after that date.

Thoughts?

davisgang90

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Something I wish they would add is the ability to withdraw only from Roth.  I just tried at the site and it still pulls all withdrawals proportionally from both my traditional and Roth. 

I have a piddling amount in my Roth TSP that I'd like to withdraw, but I don't want to touch the traditional.


Fomerly known as something

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Something I wish they would add is the ability to withdraw only from Roth.  I just tried at the site and it still pulls all withdrawals proportionally from both my traditional and Roth. 

I have a piddling amount in my Roth TSP that I'd like to withdraw, but I don't want to touch the traditional.

All the changes don't take effect until September/October.  So the change to be able to just pull from ROTH should happen at that time.

davisgang90

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Something I wish they would add is the ability to withdraw only from Roth.  I just tried at the site and it still pulls all withdrawals proportionally from both my traditional and Roth. 

I have a piddling amount in my Roth TSP that I'd like to withdraw, but I don't want to touch the traditional.

All the changes don't take effect until September/October.  So the change to be able to just pull from ROTH should happen at that time.
Great!  Thanks for the info!

DeltaBond

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I've been looking at my TSP recently, learning more about it, this info is helpful.  I have been putting 7% into TSP, but I am thinking it's better to just go back down to 5% and put that 2% into my vanguard instead.  Any thoughts on that?

wenchsenior

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I've been looking at my TSP recently, learning more about it, this info is helpful.  I have been putting 7% into TSP, but I am thinking it's better to just go back down to 5% and put that 2% into my vanguard instead.  Any thoughts on that?

It really depends on how fancy you want to get with your stock mixes, IMO.  TSP options are pretty basic; but there is nothing on earth (:exaggeration:..I haven't checked into every option on earth, but you get the idea) that beats TSP when it comes to low fees, so we max out DH's TSP first and use any extra to invest in VG IRAs and taxable accounts.  But we have very simple needs when it comes to our portfolio.

DeltaBond

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I've been looking at my TSP recently, learning more about it, this info is helpful.  I have been putting 7% into TSP, but I am thinking it's better to just go back down to 5% and put that 2% into my vanguard instead.  Any thoughts on that?

It really depends on how fancy you want to get with your stock mixes, IMO.  TSP options are pretty basic; but there is nothing on earth (:exaggeration:..I haven't checked into every option on earth, but you get the idea) that beats TSP when it comes to low fees, so we max out DH's TSP first and use any extra to invest in VG IRAs and taxable accounts.  But we have very simple needs when it comes to our portfolio.

Yeah, I guess I get squirrely thinking about the limits on how to use the TSP once I retire.  I can't remember right now if I can just cash it all out or not, lol.  I mean, to invest elsewhere, or just some other option.  But I do recall now why I did 7%, it maxed out the pre-tax amount I could do per year.

DeltaBond

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Well, the economy in my state has tanked for those of us who are natives here, so retiring early is no longer on the table.

DeniseNJ

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I've been looking at my TSP recently, learning more about it, this info is helpful.  I have been putting 7% into TSP, but I am thinking it's better to just go back down to 5% and put that 2% into my vanguard instead.  Any thoughts on that?

It really depends on how fancy you want to get with your stock mixes, IMO.  TSP options are pretty basic; but there is nothing on earth (:exaggeration:..I haven't checked into every option on earth, but you get the idea) that beats TSP when it comes to low fees, so we max out DH's TSP first and use any extra to invest in VG IRAs and taxable accounts.  But we have very simple needs when it comes to our portfolio.

Yeah, I guess I get squirrely thinking about the limits on how to use the TSP once I retire.  I can't remember right now if I can just cash it all out or not, lol.  I mean, to invest elsewhere, or just some other option.  But I do recall now why I did 7%, it maxed out the pre-tax amount I could do per year.
Be sure your 7% doesn't max out your contribution of 19K before end of December or you won't be able to contribute after you max and won't be getting any matching gov't contribution.  (sure you know this but want to be clear for other readers).  I split the 19K into 26 equal portions, put it all in traditional 80% C fund, 20% S fund, and hope for the best.  When it's up I'm happy bc I have a lot of money, when it's down I'm happy bc I'm buying shares cheap.  I also max Dh's and my Vanguard Roths.  We should be saving a lot more but putting a son through college ( and paying off a big loan asap) and just started MMM last October.

Fomerly known as something

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Just like any 401k,  investment order should be.

1.  TSP to the match
2.  IRAs and HSA if you chose to have a high deductible health plan (max).
3.  TSP to Maximum IRS limit
4.  Other investments.

Again as with a 401k you have always been able to roll TSP into a traditional IRA once separated so even prior to the modernization you had all options available with a roll over.  Now with the modernization there are more options that allow for the funds to be left in TSP.  In general I think TSPs KISS philosophy on investing is a good one and as others have said the fees are dirt cheap.   

insufFIcientfunds

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Maybe it matters, maybe it doesn’t, but when considering investment order, it might be worth considering your FERS pension calculation. You can do the rough math or use the GRB Platform to run it for you. If that pension calculation takes you to where you need to be financially and you have funds left over then other investments, such as long term care insurance, may be a consideration. It may also not be. I have a few grandparents who have ran into a pickle without it, so I feel comfortable contributing to that and knowing that it’s there when I need it. JMO...