TSP Details New Loan, Withdrawal Policies
The TSP has issued guidelines on rules and procedures for qualifying for changes to its loan and withdrawal policies promulgated under the CARES Act Virus Control Act, saying loan options will be available no later than June 22 and opt-out in mid-July. .
In either case, he said, the special provisions only apply to those who meet at least one of the three criteria (in terms of the TSP):
• You have been diagnosed with the SARS-CoV-2 virus or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention.
• Your spouse or dependent (as defined in Section 152 of the Internal Revenue Code of 1986) has been diagnosed with such virus or disease by such test.
• You suffer negative financial consequences due to quarantine, leave or dismissal or reduction of working hours due to such virus or illness, inability to work due to ” a lack of child care due to this virus or reducing the hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the secretary to the Treasury (or its delegate).
Regarding loans, the law has increased the maximum amount from $ 50,000 to $ 100,000, and the portion of your available balance that you can borrow is increased from 50 to 100%. The deadline to apply for such a loan will be in September; the TSP said it would announce an exact date soon.
The law further allows a borrower to suspend the obligation to make payments on one or more TSP loans for 12 months, in turn extending the term of the loan. “This applies to existing loans and to loans taken out until the end of 2020. We will provide you with a new form to request this suspension. You have until December 31, 2020 to suspend your payments, ”he said.
Regarding withdrawals, the law allows a one-time withdrawal until the end of this year up to $ 100,000, with an exemption from the usual requirements that you must be at least 59 and a half years old or certify that you meet to specific criteria of financial difficulties. “While you can request that we withhold money from your withdrawal for federal income tax, we will not do so automatically,” the TSP said, adding that the $ 100,000 maximum applies to Group withdrawals from all tax-advantaged retirement savings accounts, such as IRAs. .
However, any part of a distribution that would otherwise be taxable will still be taxable; tax can be prorated over three years or paid in full in one year at the option of the account holder. Those who make such withdrawals this year must designate them as a coronavirus-related distribution when filing income tax next year for this year. This must be done on Form 8915-E, which the IRS should make available before the end of the year for 2020 tax filing.
He adds, “You can repay all or part of the amount of a coronavirus-related distribution to a qualifying pension plan, as long as you complete the repayment within three years from the date you received the distribution. If you refund a coronavirus-related distribution, the distribution will be treated as if it had been refunded as part of a direct plan-to-plan transfer, so you do not owe federal income tax on the distribution. The law allows you to repay distributions related to the coronavirus to the plan from which you received them or to another qualifying pension plan. “