The Thrift Savings Plan (TSP) has issued guidance on how TSP accounts will be administered under Federal Employee Furloughs (Sequestration).
- TSP contributions – Both Agency (Gratis) and Matching- will be throttle back in accordance with what you are actually paid (not ‘base pay’) during furlough pay periods.
- Can I stop contributing to the TSP?
Sure. Just recognize that by stopping contributions, you also stop TSP Matching contributions, which is like leaving free money on the table. Confused? Here’s more info on the Types of Contributions to your TSP.
Can I take a financial hardship withdrawal? Yes, but note:
- You are locked out from contributing to TSP for 6 months.
- You can only withdraw YOUR contributions and their associated earnings (not the TSP match, and certainly not your entire TSP account balance).
- You will be taxed- BIG TIME. In addition to paying income tax, you pay a 10% early withdrawal penalty to the IRS. Translation: If your household is in the 25% marginal federal bracket, and your state income tax is 10%, a $10,0000 ‘hardship withdrawal’ only puts $5,500 in your pocket.
- This also stops your FERS Agency (Gratis) contribution to the TSP.
- The withdrawal cannot be ‘repaid’ to the TSP. Therefore, the reduction in your TSP account balance is irrevocable.
…TRANSLATION: DON’T DO A TSP ‘Financial Hardship Withdrawal’. CONSIDER TAKING A TSP LOAN, SERIOUSLY.
Can I take a TSP loan? Yes, but know this:
- If you expect a furlough (and you do), it must be expected to last 30 days or less (check).
- If you expect being furloughed periodically- i.e. once or twice per pay period (most of you do), you can take a loan.
- Loan repayments are via payroll deduction. Payback can only be stretched out to 5 years.
- You can continue contributing to TSP as before, including Agency (Gratis) and Matching Contributions.
- You cannot take out a second TSP loan if you already have a TSP loan.
In Other TSP News…
I just received my year-end (paper) TSP statement.
The TSP Director re-iterates an important point of mine, that the TSP and you should be BFFs. Even when you leave federal employment (via retirement or resigning) you can leave some or all of your TSP balance in the TSP. If you keep money in the TSP, you can roll money back in to the TSP from an IRA or from other Qualified Plans (rollover, aka ‘Trustee-to-Trustee Transfer’).
However, If you permanently ‘check out’ of the TSP, you will never again have the opportunity to access the TSP’s ultra-low cost index funds, including the unique ‘G’ Fund product. Translation: When you retire or resign from federal service, the ‘Financial Advisor’ Wolves will be at your front door licking their chops to get a bite of your TSP. They might recommend you move your TSP money to their ‘Wrap’ account or (GAG) Variable Annuity. Both options come with high costs- Don’t do it!
The TSP also published its final 2012 statistics.
Roth TSP continues to catch on, even with Active Duty (woo-hoo!). Specifically, Uniformed Services Roth TSP participation increased 300% (from ~6,300 accounts to ~25,000 accounts) between November and 2012 year end. OOH-RAH / HOO-YAH / HOO-AHH / ZOOM-ZOOM!
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