The TSP recently sent guidance to agencies on carrying out the change starting in 2024. Image: RODWORKS/Shutterstock.com
By: FEDweek StaffThe TSP has said it will delay until 2026 a change in its policy for “catch-up contributions” that was to have become effective starting in January, following IRS guidance creating a two-year “administrative transition period” for the change.
The change, in the “Secure 2.0 Act” that was part of a late-2022 budget measure, stated that effective in 2024, investors in 401(k)-type programs such as the TSP who made more than $145,000 the previous year could make catch-up investments only into Roth balances. Roth investments are made after tax but are withdrawn tax-free, in contrast to “traditional” investments made pre-tax but taxable on withdrawal.
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. This year, the standard maximum is $22,500 and catch-ups up to an additional $7,500 are allowed. Those figures may change for 2024.
The TSP recently sent guidance to agencies on carrying out the change starting in 2024, covering topics such as their obligations to keep data and report it to the TSP.
In its notice, though, the IRS said that it has been “made aware of taxpayer concerns with being able to timely implement” the change and that the delay will “facilitate an orderly transition for compliance with that requirement.”
TSP spokeswoman Kim Weaver said that the TSP was among those that asked for the delay, “not for our programming needs, but for the payroll offices.”
“The TSP does not currently collect salary data; payroll offices will need to provide this new data point to the TSP . . . all agencies plan system upgrades and budget time, money, and people for the effort. The January 1, 2024, deadline doesn’t allow many of these agencies sufficient time to prepare,” she said in an email.
She also noted that the IRS said it “will be issuing additional guidance on how they expect this provision to be implemented which will be helpful for the TSP and the payroll offices.”
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