December 23, 2025
Ms. Norton introduced the following bill; which was referred to the Committee on Ways and Means
To amend the Internal Revenue Code of 1986 to allow Federal employees who are separated from Federal service to make penalty-free distributions from Thrift Savings Plans and include such distributions in gross income over 3 years.
Section 1. Short title
This Act may be cited as the Thrift Savings Plan Emergency Withdrawal Act of 2025
.
Sec. 2. Tax-favored withdrawals from Thrift Savings plan following separation from Federal service
(a) In general
In the case of a qualified civil service separation distribution—
(1)
section 72(t) of the Internal Revenue Code of 1986 shall not apply, and
(2)
unless the taxpayer elects not to have this paragraph apply for any taxable year, the amount of any such distribution otherwise required to be included in gross income for such taxable year shall be included in gross income ratably over the 3-taxable-year period beginning with such taxable year.
(b) Limitation
The aggregate amount which may be treated as a qualified civil service separation distribution by any individual shall not exceed $100,000.
(c) Amount distributed may be repaid
(1) In general
Any individual who receives a qualified civil service separation distribution may, at any time during the 1-year period beginning on the day after the date on which such distribution was received, elect to be treated as having received the qualified civil service separation distribution in an eligible rollover distribution (as defined in section 402(c)(4) of such Code).
(2) Treatment of elected repayment
In the case of an election under the preceding sentence, the individual may, not later than the 3-year period beginning on the day after the date on which such distribution was received, make 1 or more contributions in an aggregate amount not to exceed the amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made under section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or 457(e)(16) of such Code, as the case may be, and such contributions shall be treated as amounts transferred to the eligible retirement plan in a direct trustee to trustee transfer made within 60 days of the distribution.
(d) Definition and special rules
(1) Qualified civil service separation distribution
For purposes of this subparagraph, the term qualified civil service separation distribution
means any distribution to an individual from the Thrift Savings Fund if such distribution is made during the period—
(A)
beginning on the date on which, after separating from the civil service, the individual elects an annuity payment under chapter 83 or 84 or title 5, United States Code, and
(B)
ending on the date that is 1 year after the date on which, after the Office of Personnel Management finalizes the individual’s annuity claim, the individual receives the first annuity payment (but not including any interim annuity payments) under such chapter 83 or 84, as the case may be.
(2) Treatment of contributions to which 3-year averaging applies
For purposes of subsection (a)(2), rules similar to the rules of section 408A(d)(3)(E) of the Internal Revenue Code of 1986 shall apply.
(3) Exemption of distributions from trustee to trustee transfer and withholding rules
For purposes of sections 401(a)(31), 402(f), and 3405 of such Code, a qualified civil service separation distribution shall not be treated as an eligible rollover distribution.
(e) Effective date
This section shall apply to distributions made after January 20, 2025.