7 On Your Side: Furloughed employees can use retirement savings to pay bills

7 On Your Side: Furloughed employees can use retirement savings to pay bills. (Photo: ABC7)

Federal employees have two main options to tap into the retirement funds for extra cash while furloughed.

Thrift Savings Plans are government employee's version of the 401(k) retirement plan. Withdrawing money from that savings plan before retirement can rack up huge fees and penalties, up to 20% of the money you put away.

“The distribution is really the single worst option for them because they're going to have to potentially pay the tax, plus the penalty depending on their age and if they're new to the plan, they may not be able to make additional contributions for the next 6 months,” said Jeffrey Katz, managing partner with JDKatz firm in Bethesda.

If you take a loan from your Thrift Savings Plan, you effectively act as your own bank. That means when you pay back the loan after the furlough is done, you also pay yourself the interest your savings would have earned.

There's a catch: if the shutdown lasts longer than 30 days, that option may not be available for furloughed employees.

“At this point, there is no guidance that has been issued and historically, we've never had a furlough that's gone beyond 23 days, so if it hits the 30 days, this would be the first time its ever happened,” added Katz, awaiting guidance from the Federal Retirement Thrift Investment Board.

Also, when it comes to federal employees health coverage, FEHB coverage will continue even if an agency does not make the premium payments on time. Since the employee will be in a non-pay status, the enrollee share of the FEHB premium will accumulate and be withheld from pay upon return to pay status.

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