A change in rules for “catch-up contribution” investments originally scheduled to take effect in 2024 has been delayed by two years. Image: Jason York/Shutterstock.com
By: FEDweek StaffRequired minimum distributions will no longer be required for Roth balances in TSP accounts effective in January, the TSP has said in interim final rules carrying out a change in law enacted as part of the late-2022 “Secure 2.0” Act.
The tax code requires certain minimum distributions be taken by retired account holders in the TSP and other 401(k)-type programs after reaching age 73 (an age which the same law raised from 72 effective in 2023). Those distributions, which are based on an IRS life expectancy table, up to now have applied to both Roth investments—which are made after tax but are tax-free on withdrawal—and traditional investments—which are made pre-tax but are taxable on withdrawal.
Required distributions still will apply to traditional balances. Of the $783 billion on account with the TSP at the end of September, all but $48 billion was in a traditional balance.
Meanwhile, the TSP has posted a reminder to agencies, which also serves as a reminder to account holders, that a change in rules for “catch-up contribution” investments originally scheduled to take effect in 2024 has been delayed by two years. Catch-ups are additional investments that actively employed investors who are at least age 50—or who will be before the end of a year—may make above the standard maximum.
Under that change, also part of the Secure 2.0 Act, all catch-ups will have to be into Roth balances rather than traditional balances, for investors earning more than $145,000 the previous year. Roth investments are made after tax but are withdrawn tax-free, while traditional investments are made pre-tax but are taxable on withdrawal.
While the law had specified an effective date of January 2024 and the TSP later told agencies to prepare to make that change, the IRS still later ordered a two-year delay on grounds that many retirement savings plans would not be ready to carry out such a policy as soon as January.
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