Daily Debrief Reports: No required minimum distributions for your TSP in 2010?

Last December, Congress passed a law waiving the IRS Required Minimum Distribution for 2009.

So what does that mean for your Thrift Savings Plan now?

Tom Trabucco is Director for External Affairs at the Federal Retirement Thrift Investments Board and explains during his weekly segment on the Daily Debrief.

"Last year -- at the end of the year -- because of the dramatic drop in stock values, the Congress did a good thing for older employees who were subject to what's called the Required Minimum Distribution -- or RMD -- payment from their IRA's and 401(k) plans. What Congress said is, we won't require that you make that distribution -- or withdraw -- from your plan this year."

Trabucco said the overall impetus had to do with giving older Americans a chance to build their savings back up, if they so chose.

He said, while it was a good thing for investors, it was a bit of a nightmare for plan administrators.

"It was late December and we were already . . . into our end of year process where we allow people who are receiving, for instance, monthly payments to change the amounts of their payments. They do it once a year. They were in the process of doing it and we had to unravel all of that and get a new arrangement in place to allow people to cut back on the amounts that they elected to receive in the coming year."

Now that the Board is heading into the last calendar quarter of 2009, they are trying to get ahead of things this year, which is why they will be sending out letters.

"We'll be sending out a letter this month to those participants who reduced their payments last year -- and we have about 70,000 people regularly receiving monthly payments from the TSP -- and about 7,000 did reduce their payments last year down to as little as $25, because they weren't required to take the distribution. We're letting them know that, if they do nothing, we'll continue to just send them that $25 a month if that's what they prefer to do, or they can kick back up to the higher amount that they wanted."

Trabucco said most people who are 70-and-a-half or older will get this letter, since they are the group required to withdraw money.

"Prior to this change in the law, we allowed people to just tell us, you calculate my minimum distribution and send me an equal amount each month so that I satisfy that minimum distribution for the year. We allowed those people who were in that process to say, No, cut me back I don't need the money right now. I'd rather let it build up."

Trabucco reiterated that the TSP letters contain information on how to change one's minimum distribution withdraw, not that they are required to make the change now.

"We can continue that and at the end of next year, in December, if you still owe money on your required minimum distribution for 2010, whether or not Congress steps in and changes it, we'll go ahead and just send you what you're required to do under the current law."

There has been discussion about permanently changing the law -- or making changes for 2010, as well -- but Trabucco added that nothing is eminent.

"As you know, it's pretty clear now Congress is going to be in much later into the year than they expected. They had hoped to get out in October. They're not going to hit that target. There has been talk about changing that 70-and-a-half to age 75. That talk has been around for many, many years. . . . But there has also been talk about -- have people recovered enough yet with their retirement investments to put that minimum distribution requirement in place for 2010."

Trabucco said it is very likely that the Board -- and the public -- won't know the answer until around December.

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