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Withdrawals

You may make withdrawals from your Thrift Plan accounts during your employment. However, because the Plan is intended for long-term savings and retirement, withdrawals of pretax contributions and investment earnings are restricted by the Internal Revenue Code and carry tax consequences.

To initiate a withdrawal, contact Benefits Express. You may request up to three withdrawals each year. You may make two types of withdrawals from your Thrift Plan:

• Non-hardship withdrawals
• Hardship withdrawals to meet certain severe financial needs

Both types of withdrawals are discussed later on this page.

   Tax Consequences  
   of Withdrawing Taxable Monies  

Your pretax contributions, employer matching contributions, and investment earnings become taxable when you receive them. You are encouraged to consult a professional financial or tax adviser for additional information on your own tax status before you request or receive any payment from the Plan.

   Penalty for Early Withdrawal  

Unless one of the exceptions listed below applies, you'll be liable for a 10 percent federal excise tax on the taxable portion of any Thrift Plan distribution you receive.

This excise tax is in addition to the regular income taxes you will be required to pay on the taxable portion of your withdrawal when you file your IRS Form 1040. This excise tax applies to any taxable distribution, whether or not you terminate employment, and will apply even if you make a hardship withdrawal of taxable funds. The tax applies to your employer matching contributions, rollovers, your pretax contributions, and all earnings on those amounts as well as the earnings on your after-tax contributions.

The 10 percent penalty does not apply if the withdrawal is paid

• because of your death or disability,
• after you retire on or after you reach age 55,
• after you reach age 59-1/2,
• to cover tax-deductible medical expenses, or
• to an alternate payee as directed by a qualified domestic relations court order.

   20 Percent Federal Tax Withholding  

IRS regulations also require an automatic 20 percent federal tax withholding on most taxable distributions (withdrawals, lump sums, or installments of fewer than 10 years) from qualified plans. When you receive such a distribution, the Federal Reserve is required by law to withhold 20 percent. You can avoid the 20 percent withholding if you directly roll over the taxable amount into an IRA or another employer's qualified plan and have your distribution check made payable to the trustee of the IRA or plan. If you don't directly roll over the distribution and have the check made payable to you, the 20 percent will be automatically withheld.

   Non-Hardship Withdrawals  

You may choose from two types of non-hardship withdrawals:

Keep in mind that investment earnings are tax-deferred and will become taxable when withdrawn. For more information, see Tax Consequences of Withdrawing Taxable Monies discussed earlier in this section.

To request a non-hardship withdrawal, contact Benefits Express. If you're eligible, you may initiate the withdrawal directly through Benefits Express.

  Hardship Withdrawals  

Employees under age 59-1/2 may withdraw money from their Deferred Compensation accounts by requesting a hardship withdrawal. Hardship withdrawals are only available for the following severe financial hardships:

• purchasing your primary residence
• preventing foreclosure or eviction from your primary residence
• paying for major uninsured medical expenses for you or your eligible dependents (those for whom you take a federal income tax deduction)
• paying tuition, room and board, and related educational expenses for the next 12 months for you or an eligible dependent to attend a post-secondary school, such as college

Withdrawals for financial hardships are allowed only if funds from other sources are not reasonably available, including loans from your Thrift Plan account. Remember, your hardship withdrawal request can include an amount to cover the taxes that result from the withdrawal.

   What You May Withdraw  

If you have an approved hardship, you will receive all non-Deferred Compensation account balances except IRA. In addition, you may withdraw certain funds from

• your Deferred Compensation account balance as of December 31, 1988, or
• contributions made to your Deferred Compensation account after December 31, 1988 (these are paid out last)

   To Request a Hardship Withdrawal  

  Tax Treatment of Hardship Withdrawals  

Hardship withdrawals are taxable as ordinary income in the year in which they are received and are generally subject to the 10 percent early withdrawal penalty. Monies received from your Deferred Compensation account in a hardship withdrawal are not subject to the 20 percent automatic federal income tax withholding and are not eligible for rollover.

   Contribution Suspension After a Hardship Withdrawal  

If you take a hardship withdrawal, you won't be able to contribute to the Thrift Plan for 12 months following the receipt of the hardship withdrawal and, as a result, will not receive employer matching contributions during this period. You'll also have to establish new contribution rates after the suspension period ends. Contributions will not resume automatically.

Your pre-tax contributions in the taxable year following the suspension will also be limited to the indexed pre-tax maximum ($15,500 in 2007) minus the amount contributed in the year you received the hardship withdrawal. For example, suppose you contribute $4,000 between January and March 2002, then take a hardship withdrawal effective the last business day in April 2002 and receive the payment in the beginning of May 2002. You may resume contributing to the Plan in June 2003, and your contribution will be limited to $6,500 for calendar year 2003.

   Final Distribution of Funds  

You or your beneficiary may receive funds from the Thrift Plan under the following circumstances:

• when you retire
• if you become disabled
• if you leave the Federal Reserve
• if you die

If your account balance is over $5,000, you may

• leave your account balance in the Plan until the April 1 following the end of the calendar year in which you reach age 70-1/2, at which point the Plan will begin making minimum distributions to you in accordance with IRS regulations. You may continue making up to three withdrawals per year;
• choose a direct rollover, and transfer all or a portion of your distribution to an IRA or other qualified plan that will accept the transfer. Payments ineligible for rollover, such as after-tax contributions, will be paid directly to you; or
• have the balance paid directly to you. Keep in mind that your distribution will be subject to 20 percent tax withholding and may be subject to the 10 percent early withdrawal penalty if you are under age 59-1/2 and retired before you attained age 55

If you choose a distribution, either in the form of a direct rollover or direct payment, you may elect equal installments for a period of time (but not exceeding your life expectancy or joint life expectancy). All installment payments (except those for 10 years or more) are subject to 20 percent federal tax withholding, unless they are directly rolled over into an IRA or another qualified plan. Installments for 10 years or more cannot be rolled over. While you're receiving installment payments, you may request a month-end withdrawal.

   Restricted Installment Payment Option

If you leave the Federal Reserve before reaching age 55, you are also given the option of receiving installment payments prior to age 59-1/2 without incurring the 10 percent early distribution tax. This option, called restricted installment payments, requires that you elect to receive installment payments over your life expectancy (or joint life expectancy). However, you are prohibited from making a withdrawal or modifying the payment election until five years from the date of the first installment or when you attain age 59-1/2, whichever is later. At that point, you may choose to end the installment payments and receive a single lump-sum payment of your remaining Thrift Plan account balance.

If your Plan balance is less than or equal to $5,000, you have two options:

• You will automatically receive your funds approximately three months after you leave, unless you choose a direct rollover to an IRA or another qualified plan
• You may not leave your balance in the Plan

When you receive a distribution from the Plan, you will receive an IRS Form 1099-R. This form is sent to you in January of the year following your distribution. The information is also filed with the IRS. You will need this form when filing your income taxes.

You will receive additional information regarding your final distribution options when you leave the Federal Reserve. To request a final distribution, contact Benefits Express for the appropriate paperwork.

   Minimum Distribution at Age 70-1/2

If you are not employed by the Federal Reserve when you reach age 70-1/2, you are required to begin receiving your Thrift Plan balances. If your spouse, as your beneficiary, has left your balance in the Plan after your death, your spouse will be required to start receiving your balance when you would have reached age 70-1/2. If the minimum required distribution is not paid out, a 50 percent excise tax will apply, in addition to any other taxes due.