Federal News Network, 27 March 2020
"Relaxed rules for federal retirees
Federal retirees would see some relief through two key provisions.
First, the stimulus temporarily waives required minimum distribution (RMD) rules for certain retirement plans and accounts, including the Thrift Savings Plan.
Under current rules, retirees at age 72 or older must withdraw a minimum amount from their accounts each year. Minimums are determined using a specific formula, which is based on a retiree’s account balance at the end of 2019.
But with these rules waived, federal retirees should help them keep a greater portion of their savings.
“Unfortunately, with the S&P 500 stock market index down by more than 25% since the beginning of the year, seniors will be forced to withdraw a far greater percentage of their retirement accounts than expected, or face a punishing 50% tax penalty,” Ken Thomas, national president of the National Active and Retired Federal Employees (NARFE) Association, said in a March 20 letter to Congress. “These required withdrawals will also force seniors to sell assets at stock values that have been depressed by the current crisis.”
Second, the stimulus bill allows eligible individuals to withdraw up to $100,000 from their retirement accounts without incurring the typical 10% tax penalty.
Individuals have to pay back the distributions within three years, and the flexibility only applies to certain people. To qualify, individuals must be diagnosed with coronavirus, have a spouse or dependent who has the virus or must experience adverse consequences due to the coronavirus.
“Adverse consequences” include losing work hours, being laid off, furloughed or quarantined, or being unable to work due to lack of child care or school options.
Given the wide variety of options to qualify for this hardship flexibility, the Thrift Savings Plan predicted it could be administratively difficult to implement, Kim Weaver, director of external affairs for the Federal Retirement Thrift Investment Board, said Monday.Relaxed rules for federal retirees
Federal retirees would see some relief through two key provisions.
First, the stimulus temporarily waives required minimum distribution (RMD) rules for certain retirement plans and accounts, including the Thrift Savings Plan.
Under current rules, retirees at age 72 or older must withdraw a minimum amount from their accounts each year. Minimums are determined using a specific formula, which is based on a retiree’s account balance at the end of 2019.
But with these rules waived, federal retirees should help them keep a greater portion of their savings.
“Unfortunately, with the S&P 500 stock market index down by more than 25% since the beginning of the year, seniors will be forced to withdraw a far greater percentage of their retirement accounts than expected, or face a punishing 50% tax penalty,” Ken Thomas, national president of the National Active and Retired Federal Employees (NARFE) Association, said in a March 20 letter to Congress. “These required withdrawals will also force seniors to sell assets at stock values that have been depressed by the current crisis.”
Second, the stimulus bill allows eligible individuals to withdraw up to $100,000 from their retirement accounts without incurring the typical 10% tax penalty.
Individuals have to pay back the distributions within three years, and the flexibility only applies to certain people. To qualify, individuals must be diagnosed with coronavirus, have a spouse or dependent who has the virus or must experience adverse consequences due to the coronavirus.
“Adverse consequences” include losing work hours, being laid off, furloughed or quarantined, or being unable to work due to lack of child care or school options.
Given the wide variety of options to qualify for this hardship flexibility, the Thrift Savings Plan predicted it could be administratively difficult to implement, Kim Weaver, director of external affairs for the Federal Retirement Thrift Investment Board, said Monday."
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