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Home›Investment›TSP announces loan options under the CARES Act

TSP announces loan options under the CARES Act

By Eric Gutierrez
March 19, 2021
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the CARES Law was enacted on March 27, 2020. It contained a provision allowing early withdrawal from a pension plan without the usual 10% penalty.

He was unknown if or when the savings plan would introduce this provision to enable TSP participants to use it for financial hardship resulting from the coronavirus.

But now we have an answer. The TSP this week announced new temporary loan and withdrawal options available under the CARES Act for federal employees who meet certain criteria.

The loan options described by the TSP will be available no later than June 22, and the opt-out option will be available in mid-July.

To be eligible, the TSP says that you, your spouse, or your dependent must have tested positive for the COVID-19 coronavirus and that you “are experiencing negative financial consequences as a result of quarantine, discharge or dismissal or reduction of working hours due to such virus or illness, being unable to work due to lack of child care due to such virus or such illness, shutting down or reducing the hours of a business owned or operated by the individual due to such virus or illness, or other factors as determined by the Secretary of the Treasury (or his delegate).

In the meantime, the TSP also highlighted other withdrawals options currently available to help federal employees affected by the coronavirus.

The TSP announcement with full details on these new financial aid options is included below.

CARES Act Temporary Loan and Withdrawal Options Update – (May 14, 2020)

The CARES Act allows us to offer temporary loan and withdrawal options to TSP participants affected by COVID-19. We are announcing today that the loan options described below will be available on or before June 22, 2020, and that the opt-out option described here will be available in mid-July 2020.. Loan and withdrawal options are only available to you if you can certify that you meet one or more of the following criteria:

  • 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 lack of child care due to such virus or disease, closure or reduction of hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or his delegate).

Maximum loan amount increased
The maximum loan amount goes from $ 50,000 to $ 100,000, and the portion of your available balance that you can borrow goes from 50% to 100%. The deadline to apply for a loan with this increased maximum will be September 2020. We will be announcing the exact deadline soon.

Temporary suspension of loan payments
You can suspend your obligation to make payments on your TSP loan (s) for 12 months, which will also extend your loan term by 12 months. 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.

Withdrawal of the CARES law
You can make a one-time withdrawal of up to $ 100,000 from a Civilian or Uniform Service account. For those still in the federal service, the usual requirements that you must be at least 59 and a half years old or certify that you meet specific financial hardship criteria are waived. While you can request that we withhold money from your withdrawal for federal income tax, we will not do this automatically. This withdrawal will be eligible for favorable tax treatment described herewith all the same options and restrictions. The deadline to request this withdrawal will be in December 2020. We will announce the exact deadline soon.

© 2021 Ian Smith. All rights reserved. This article may not be reproduced without the express written consent of Ian Smith.

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