What Happens to Your TSP if You Leave Federal Service?

Oct 31, 2016

A federal worker looking at his tsp

tspThe Thrift Savings Plan (TSP) is available to federal employees and works very similar to a 401k. It is part of the three-tier FERS system, which also includes a pension and Social Security. So what happens if you leave federal service? Can your TSP move with you?

Regardless of how you separate from federal service, retirement or resignation, your TSP fund is designed so that you can take your money with you if you choose to do so. It takes about 30 days for you to have access to your funds. You no longer will be able to contribute to your TSP, however, because contributions are deducted through payroll.

Options for Your TSP After Your Federal Service

Below are options that are still available for your TSP if you leave federal service:

  • You are still able to re-balance your account by way of inter-fund transfers.
  • Your account is still subject to the same restrictions on inter-fund transfers as current employees. These include being limited to two unrestricted transfers per month, and any additional transfers are only allowed if you are moving money into the G-fund from another fund.
  • You are still able to roll or transfer money from other individual employee-sponsored retirement accounts into your TSP.

Here are the differences for separated and current employees:

  • Separated employees can withdrawal money from their account at any time. On the other hand, current employees must wait until they are at least 59 ½ to do so.
  • Current employees aren’t required to take a Required Minimum Distribution (RMD) at age 70 ½, while separated employees at that must start taking RMD’s.

Whether you retire from federal service or resign, your options for withdrawal remain the same. Federal income taxes still have to be paid on the withdrawals from the Traditional portion of your TSP. State income taxes vary depending on what state you live in. To be considered qualified to withdrawal from your account, you must have had the Roth balance in your TSP account for at least five years and you must be at least 59 ½ years of age. If you have a loan on your account, you are still responsible for resolving that.

Phased Retirees and TSP

If you are a phased retiree, you are still eligible to contribute to your Thrift Savings Plan. Those contributions are subject to normal restrictions. However, you are not eligible for post-employment withdrawals and you are not subject to the RMD age requirement. Being a phased retiree, you receive income from wages and an annuity. Your TSP contributions are calculated based on your basic pay. Your annuity will not be used for that calculation.

For more information about your TSP, please click here.

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