RULE CHANGE!! (TSP LOANS during FURLOUGHS- NEW RULES!)

[James48843]

I just picked this up off FedSmith.com - For the Informed Fed (Thanks Fedsmith!!)

Rule Change Will Facilitate Borrowing from TSP During Shutdowns

by Ian Smith February 6, 2019

The Federal Retirement Thrift Investment Board has issued an interim rule that will allow certain Thrift Savings Plan participants to request a loan during government shutdowns without regard to whether they are in pay status.

The new rule was ​

published in the Federal Register

and went into effect on February 5. It is currently open to comments, however, comments must be received by March 7, 2019.​

About the Rule Change

Under the rule change, TSP regulations will be amended to allow certain TSP participants to request a loan during government shutdowns without regard to whether they are in pay status. In order to qualify, TSP participants have to be furloughed due to a partial government shutdown or excepted from furlough (i.e. working without pay) due to a partial government shutdown.


The FRTIB will permit TSP participants to request a suspension of loan payments to the extent a suspension is permitted under the IRS’s interpretation of the Internal Revenue Code.
Basis for the Rule Change

TSP participants are allowed to borrow against their retirement savings accounts. The FRTIB is required to report loans to the IRS as taxable income subject to a 10% penalty after a certain number of loan payments are missed. However, loan payments cannot be made through payroll deduction if the participant is not receiving a paycheck. For this reason, the FRTIB regulations contain a provision that makes loan eligibility contingent on pay status.

The FRTIB notes that loans are not an ideal way for federal employees to raise money and were not designed to replace federal workers’ income. It stated in the Federal Register announcement, “TSP participants who take loans may miss out on the investment earnings that would have accrued if that money had remained [in] their retirement accounts. A TSP loan will still have to be repaid in order to avoid the loan being declared a taxable distribution.”

However, in deciding to issue the new rule, the FRTIB said that it hopes the change “might provide some assistance to TSP participants in the event of another government shutdown."

More:
https://www.fedsmith.com/2019/02/06/rule-change-facilitate-borrowing-tsp-shutdowns/

This is a very big deal!- and is valuable for anyone caught in the middle of a furlough like we just had. I am impressed they did it as an interim rule, meaning it is effective immediately. I worked with my Congresswoman to get a bill drafted to do this- but the TSP Thrift Board just did it with a rule immediately. GREAT JOB!

 

[sniper]

Wow this is good news, I heard about them doing this for people who had to work without pay, but this seems like they're including anyone who's furloughed without pay?

Of course it still sucks to take money out where it could be invested instead, but beats the stress of wondering if you can pay the bills. I thought they should have done this a long time ago, but better late than never.

But hey I guess I don't have to worry as much if the government shuts down again on the 15th. I'm in the process of buying a home right now and wouldn't want to be up sh*t's creek right off the bat lol.

 

[James48843]

Yes, it's great news.


I wondered how many people ended up turning to do an emergency "Hardship" withdrawl from their TSP accounts - an actual WITHDRAWL is a BAD thing that you do NOT want to do, if you can avoid it.


By taking a HARDSHIP WITHDRAWL before age 59 1/2, instead of a LOAN, you would trigger both a TAXABLE EVENT, plus a 10% IRS PENALTY TAX, plus you are banned for SIX MONTHS from making deposits back into the account, including any AGENCY MATCHING for the next six months.


In summary- NEVER do the EARLY WITHDRAWAL of TSP funds instead of a LOAN unless it's absolutely your LAST option.


Note: During the most recent shutdown, TSP officials report they processed 12,204 TSP hardship early withdrawals, in which participants withdraw money from their account, minus a 10-percent IRS Early Withdrawal tax penalty, for a total of $143.9 million.

Those 12,204 people are now stuck with both the 10% penalty, AND are not able to make new deposits into the TSP, or receive matching funds, until 6 months from when they took their withdrawals.

 

[sniper]

Wow that really sucks. Wish the change was sooner especially since I'm willing to bet a lot of those people taking those withdrawals were TSA workers who probably make just enough to pay their rent and bills. And to add insult to injury, also had to work.

 

[felinecrl]

I just picked this up off FedSmith.com - For the Informed Fed (Thanks Fedsmith!!)



More:
https://www.fedsmith.com/2019/02/06/rule-change-facilitate-borrowing-tsp-shutdowns/

This is a very big deal!- and is valuable for anyone caught in the middle of a furlough like we just had. I am impressed they did it as an interim rule, meaning it is effective immediately. I worked with my Congresswoman to get a bill drafted to do this- but the TSP Thrift Board just did it with a rule immediately. GREAT JOB!


Great idea indeed!