Federal employees are facing unprecedented job insecurity as each day brings fresh news of attempts to reduce the federal workforce. It’s never been more important to understand your federal benefits and what happens when you separate from service. Let’s take a minute to explain your TSP options following separation.
Vesting Requirements
FERS participants in civil service must work a required number of years to get the Agency Automatic (1%) contribution to their TSP account. Most FERS employees become vested after three years, but congressional and some non-career positions become vested after two years. If you leave the federal workforce before you’re vested, you lose the Agency Automatic (1%) contribution along with any earnings made from that 1%. You are always vested in your own contributions, the agency match, and any earnings they make.
Minimum Balance
In order to keep your TSP account open, you must maintain a minimum vested balance of $200. If your TSP balance is below this amount when your agency reports your separation, your balance will be sent to you in a lump sum payment, so make sure your address is up-to-date. Once the balance is paid out, you will not be allowed to remain in the TSP. If you like the ease and low fees associated with the TSP, you might consider bumping up your contributions to reach the required balance. Make sure to allow for market fluctuation.
Contribution Limitations
If you are not receiving monthly payments from your TSP after separation, you can contribute funds via a transfer from a traditional IRA or eligible employer plan. That means you could leave civil service, participate in a tax-advantaged private sector retirement plan, and then roll that account into your TSP at a future date.
Withdrawal Options
You can make a one-time-only partial withdrawal of $1,000 or more and leave the rest of the balance in your TSP. Note that if you made an age-based (59.5 or older) in-service withdrawal while still employed, you are not eligible for this option.
You can elect to withdraw the full amount through a single payment or monthly payments. The monthly payments can be computed using the IRS life expectancy tables or you can request a specific dollar amount (must be over $25) that will be paid monthly until your balance is exhausted.
The TSP can also purchase a life annuity, there is a $3,500 dollar minimum and the annuity is provided through MetLife.
If you’re not sure which option is best, you can do a mixed withdrawal with a combination of the options that best fit your needs.
Transfer Your TSP
Your TSP account is a portable retirement benefit. Your new employer might be able to accept a transfer into their plan or you can transfer it into an individual retirement account.
If you still have questions or are unsure how you should proceed, reach out to a Federal Retirement Consultant® who can work with you to make a personalized plan.
