Beginning in 2024, Roth balances will no longer be subject to RMDs prior to a participant’s death. Image: Zhanna Hapanovich/Shutterstock.com
By: FEDweek StaffThe TSP has posted a summary of current and upcoming policy changes under the Secure 2.0 law enacted late in 2022 affecting itself and other similar retirement savings programs, including a change effective in January regarding required minimum distributions for retirees age 73 and above.
“Beginning in 2024, Roth balances will no longer be subject to RMDs prior to a participant’s death. Your RMD calculation will include only your traditional balance, and only distributions from your traditional balance will count toward satisfying the RMD amount. If you have a Roth balance in your TSP account, this means your 2024 RMD amount may be less than it would have been,” it says.
“Calculations for RMDs from spouse beneficiary participant accounts will still include the entire account balance, and any distribution from a spouse beneficiary participant account will still count toward satisfying the RMD,” it adds.
Of the $771 billion on investment in TSP accounts through October, about $47 billion was in Roth status.
The same law had increased the age at which such distributions must begin from 72 to 73 effective in 2023, and will increase it further to age 75 effective in 2033, the TSP added.
Also made effective as of 2023 were:
* Allowing rollovers of Roth TSP balances after separation from service to SIMPLE (Savings Incentive Match Plan for Employees) IRAs and SEPs (simplified employee pension plans.
* A widening of an exception for public safety officers from the general 10 percent early withdrawal tax penalty for taking certain distributions from tax-favored retirement savings accounts before age 55; the exception now also applies to those who have separated from service and have 25 years of service under the plan, even if they hadn’t reached age 50 at separation.
Also effective in 2024, “when a participant meets the requirements for an exception to the 10% early withdrawal penalty by receiving substantially equal periodic payments, the exception will continue to apply in the case of a rollover of the account (if payments continue) or an annuity purchase that satisfies the required minimum distribution rules,” it says.
Effective in 2025, those age 60, 61, 62, and 63 who are eligible for catch-up contributions—allowed for those age 50 or above in a year who exceed the standard investment limit (which will be $23,000 in 2024)—will “have a higher catch-up limit than participants who are younger or older. For these participants, the IRS catch-up contribution limit increases to the greater of $10,000 (indexed to inflation) or 150% of the regular catch-up limit.”
Effective in 2026, catch-up contributions “must be Roth contributions if your wages from TSP-eligible positions are above a certain threshold. The IRS wage threshold will be adjusted for inflation and announced by the IRS each year. (When this law passed in 2022, the original wage threshold was set at $145,000 for 2023 wages.)”
“Beginning in 2026, if this provision applies to you and your contribution election includes savings to your traditional TSP balance, your contributions will change automatically to all Roth TSP contributions once you meet” the standard annual investment limit.
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