Thrift Savings Plan Emergency Withdrawal Act of 2025

This legislative proposal aims to provide financial flexibility for federal employees separating from civil service by allowing them to make penalty-free withdrawals from their Thrift Savings Plans (TSP). Under this measure, the usual 10% early withdrawal penalty under section 72(t) of the Internal Revenue Code would not apply to these specific distributions. Instead, the taxable portion of the withdrawal would be included in the individual's gross income over a three-taxable-year period , unless the taxpayer chooses otherwise. There is a limitation of $100,000 on the aggregate amount that can be treated as a qualified civil service separation distribution for any individual. Furthermore, the bill includes a provision allowing individuals to repay the distributed amount within a one-year period after receiving it. If repaid, the distribution can be treated as an eligible rollover distribution and contributed to another eligible retirement plan within three years. This measure defines a "qualified civil service separation distribution" as one made from the TSP after separating from federal service and electing an annuity, within a specified timeframe. The provisions of this bill would apply to distributions made after January 20, 2025.