What Happens if a TSP Account Owner Does Not Specify a Withdrawal Option?

Retirement for federal employees is partly funded by TSP accounts.

The Thrift Savings Plan is a tax-deferred retirement account for employees of the federal government. TSP accounts are similar to 401k accounts in the private sector. Both the employee and employer contribute to a TSP account. The employee decides how the account is invested. Once a federal employee retires or otherwise leaves federal service, he can begin withdrawing funds from his TSP account by filing forms to specify his withdrawal options.

Partial Withdrawal

After leaving federal service, you can withdraw part of the money in your TSP account by filing Form TSP-77, Request for Partial Withdrawal When Separated (see Resources). The minimum withdrawal amount is $1,000, as of 2011. You can file the form online at the TSP website or submit a paper form. The amount left in your TSP account remains in whatever investment option you have selected for your funds.

Lump Sum Withdrawal

You can withdraw the entire amount in your TSP account as a lump sum by filing Form TSP-70, Request for Full Withdrawal (see Resources).

Regular Payments

You can withdraw TSP funds as a series of regular monthly payments. Use the same form, TSP-70, to make this request.

Mandatory Withdrawals

You are required by federal law to begin withdrawing funds from your TSP account within a year of leaving federal service or in the year after you turn 70 1/2. You usually receive notification of withdrawal requirements directly from the TSP well before you reach the mandatory withdrawal deadline.

Failure to Specify a Withdrawal Option

If you do not file a withdrawal option with the TSP and make your first withdrawal by the required deadline, you forfeit your account. TSP takes ownership of your funds. You can reclaim your funds by filing Form TSP-70 for a full withdrawal of your funds. Your account stops earning income during the period in which your funds were forfeited and you may have to pay a penalty tax to the IRS depending on your tax situation.

References

• Thrift Savings Plan; Withdrawing Your TSP Account After Leaving Federal Services; June 2007
• Thrift Savings Plan: Forms and Publications
• Thrift Savings Plan: Important Tax Information About Your TSP Withdrawal and Required Minimum Distributions

Resources

• Thrift Savings Plan: Homepage
• Thrift Savings Plan: Form TSP-77, Request for Partial Withdrawal When Separated
• Thrift Savings Plan: Form TSP-70, Request for Full Withdrawal