Thrift Savings Plan Division (TSP)
As of October 8, 2001, military servicemembers were permitted to participate in the “Thrift Savings Plan” (“TSP”) which is similar to a private sector 401(k), allowing members to invest in a variety of funds.
Persons employed through the United States government in federal service are similarly permitted to contribute to a Thrift Savings Plan.
Persons contributing are now able to elect both, a defined benefit and defined contribution type of program, both of which would need to be addressed upon divorce. In 2012, a “Roth” option was added to TSP.
Is a QDRO Required for the Division/Distribution of a TSP Account?
The Thrift Savings Board has outsourced the review and approval of the Retirement Benefit Court Orders (RBCO) to a private company. The new company/plan administrator requires a RBCO that is more detailed than a normal QDRO and they have very strict guidelines to allow an effective or approved order. A spousal share can be rolled over to an individual retirement account (IRA) or other eligible plan, whereby taxes are not required to be paid. Otherwise, the spouse is taxed upon distribution and 20% tax is withheld.
Can Funds be Withdrawn from a TSP Account Before Retirement?
Participants who withdraw funds prior to the age of retirement will significantly, negatively affect their TSP account balance. The sums that are withdrawn while a participant is actively employed in federal service or uniformed service can never be replaced or replenished. These employees therefore permanently deplete or reduce their retirement savings by the amount withdrawn. Even if a participant removes funds based on a personal, financial hardship, they are subject to a 10% penalty and cannot make any new contributions for 6 months (a second penalty, of sorts).
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