Retirement & Financial Planning Report

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Some parts of a package of changes to retirement savings programs including the TSP will take effect as soon as technical rules can be issued to carry them out but the impact on federal employees of some others is less certain because policy decisions will be needed.

The changes are part of the “Secure 2.0 Act” that was incorporated into a wrap up spending bill enacted in the late days of 2022, changing sections of the tax code applying to the TSP, 401(k) programs and similar retirement savings provisions. The TSP said it is “continuing to assess how SECURE 2.0 will affect the TSP and will provide updates as more details are finalized.”

Of most immediate impact is raising the age at which “required minimum distributions” must begin from such accounts from 72 to 73, effective with those turning 73 this year. The last time that age was raised, from 70 ½ effective with calendar year 2020 under the original Secure Act of 2019, the TSP issued instructions on the impact routinely and fairly quickly. (The recent law further boosts the age to 75 effective with those turning that age in 2033.)

Guidance also will be needed, although not necessarily as quickly, on routine provisions to be to:

* end the requirement for required minimum distributions of Roth balances (investments made after-tax but withdrawn tax-free along with their earnings) in such plans, effective in 2024;
* allow a withdrawal of to $1,000 per year for certain emergency needs without the standard 10 percent tax penalty applying to in-service withdrawals taken before age 59 ½ effective in 2024; and
* raise the limit on the additional “catch-up contributions” allowed for those age 50 and older to $10,000 for those age 60, 61, 62 or 63, effective in 2025.

Other provisions are more complex, including to require that catch-up contributions be made in Roth status for those above certain income thresholds and to index the allowable amounts to inflation.

And another provision may require high-level policy decision rather than mere technical rules. That would allow employers make matching contributions for their employees who are paying off student loan debt, as if those payments had been investments in their retirement savings accounts. Unlike the other provisions, that is at the discretion of the employer, and in the federal government context it is not defined whether such payments would be set by government-wide policy or whether individual agencies would decide whether to pay them, much as they do now with incentive payments.

The law also contains provisions whose impact on the TSP would have to be assessed because the TSP already has policies in place, including for example affecting automatic enrollment and default investments of newly hired employees starting in 2025.

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