With the SECURE Act passing and going into effect last year, the new age to start taking required minimum distributions (RMD's) from certain retirement savings plans/accounts has been increased to 72 years old for everyone who was under 70.5 as of Jan 1, 2020. The Thrift Savings Plan (TSP), a retirement savings and investment plan for Federal employees and members of the uniformed services, is also subject to RMDs but is separate from other retirement plans or IRAs. One of many ways employer plans, like the TSP, differ from IRAs is that Roth funds in the TSP are subject to RMDs. In a Roth IRA, there are no RMDs required. If a person has Roth funds in the TSP, they are added to the Traditional and tax-exempt amounts in the TSP as part of the RMD calculation.
As of September 2019, thanks to the TSP Modernization Act, a participant in the TSP does not have to take a distribution from both Traditional and Roth funds every time they want money out of the plan. The participant can now choose if they want to use taxable Traditional funds or tax-exempt Roth funds to satisfy the RMD. If the account owner does not specify whether the funds are pulled from Traditional or Roth, then TSP will pull from both in proportion. This is good news which must be discussed with a qualified tax planner. Beneficiaries of a TSP account can also choose whether to pull any money, even RMD amounts if they are required to take them, from either the Traditional or Roth accounts as they see fit. If a participant doesn’t tell the TSP when they want their RMDs, the TSP will automatically send the distribution a month before it's due. This is a courtesy service, but the TSP can only work with the information they are given.
If you participate in the TSP, now would be a good time to review your plan to insure the personal information on the account is accurate. The birthdate on file is what the TSP uses to calculate these RMDs. This topic can become confusing. Please reach out if you have questions, would like a second opinion or just want to chat about the subject. At Holland Financial, we are here to help and go to great lengths to explain complicated topics in plain language. Call us at (386) 671-7526, email us at questions@PlanStronger.com or visit us online at https://www.planstronger.com.
Matt Sumrall, MPAS®, is an Associate Adviser with Holland Financial, Inc. He is an Air Force veteran, having served 11 years active duty, deploying as an Air Battle Manager on an E-3 aircraft in the 962nd Airborne Air Control Squadron out of Alaska. Later, while stationed at Tinker Air Force Base in Oklahoma, Matt utilized his Masters in Financial Planning to help fellow service members understand their finances.