Thrift Savings Plan: Can you take it with you?

In FCW's Friday Financials column, Milt Zall presents some important facts that you should know about your Thrift Savings Plan account.

If you are federal worker heading for a job in the private sector, here

are some important facts that you should know about your Thrift Savings

Plan account.

If you leave the government, you can transfer your TSP account to either

an IRA or your new employer's plan, if one is available. It's likely that

you will have to convert your TSP holdings to cash before transferring the

balance to an IRA or a new employer's 401(k) plan. Keep in mind that your

new employer's 401(k) or similar plan will have its own rules and regulations

and may differ from what you are accustomed to as a TSP participant.

Investment choices: Your new employer will determine what investments

you can make through your 401(k) plan. Your employer can make changes to

your investment options if it wants to. You cannot invest on a tax-deferred

basis in a mutual fund that is not participating in your employer's 401(k)

plan. The law requires your employer to offer you the opportunity to invest

in competitively performing funds.

Withdrawals: Some plans allow employees to borrow from the plan and

the interest charged goes right into the employee's account, just like the

TSP. If you do not repay a loan, it is considered a withdrawal and you will

owe income tax on it plus an early withdrawal penalty if you are less than

59 1/2 years old. If your new plan does not permit loans, the law provides

for "financial hardship withdrawals." The law permits withdrawals when you

are unable to borrow from any source and you need money for items such as

* A down payment on a primary residence.

* College tuition for yourself or your dependents.

* Medical expenses that were not reimbursed

* To prevent eviction from, or foreclosure on, your home.

Company match: Your employer can match your plan contributions in a

variety of ways. It can contribute a fixed percentage of what you contribute,

up to a certain limit, or it can contribute a set percentage of your pay.

Your employer can vary what it contributes each year, based on the company's

profitability.

Continuing contributions: Most employers will allow you to suspend contributions

if you are in a financial bind. Some plans require that your contribution

rate remain constant throughout the year. Check your plan rules to make

sure you know what you can and cannot do.

Job changes and account distributions: If you leave your new employer,

voluntarily or otherwise, and have an account balance that is more than

$5,000, you can leave your money in the plan if you want to. You can also

transfer your vested balance to a new employer's 401(k) plan or an IRA.

Withdrawal subjects you to the early withdrawal penalty if you are under

age 59 1/2, plus regular income tax. When your account balance is distributed

to you depends on what your plan document says. Some plans do not permit

distributions until you attain retirement age, but that is not typical.

Most plans will distribute your funds in accordance with your directions

as soon as they can determine your account balance. Account balances are

determined at different time intervals, depending on your plan. Some determine

balances daily, while others determine balances monthly, quarterly, semi-annually

or even annually.

When you will receive your distribution also depends on where your money

is invested. If your money is in a mutual fund, your account can be liquidated

quickly. However, if you have money in a real estate investment, it could

take a while to liquidate your holding.

— Zall, Bureaucratus columnist and a retired federal employee, is a freelance

writer based in Silver Spring, Md. He specializes in taxes, investing, business

and government workplace issues. He is a certified internal auditor and

a registered investment adviser. He can be reached via e-mail at miltzall@starpower.net.

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