TSP

John Grobe

One good part of the Setting Every Community Up for Retirement Enhancement (SECURE) Act is that it provides that minimum distributions (RMDs) are not required until the year in which the IRA owner reaches the age of 72.

This also applies to employer sponsored defined contribution plans such as the Thrift Savings Plan. The previous law stated that RMDs must be taken beginning in the year that the account owner reaches 70 ½. The TSP has a “still working” exception that shields participants who are past the age of having to take RMDs from taking one if they are still employed at their federal job.

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The change from 70 ½ to 72 will not help the four oldest presidential candidates (Sanders, Bloomberg, Biden and Trump) for whom the age of 72 is in their rear-view mirror, but it will help the rest of the 2020 field. It will have no effect on the many people who begin taking money from their IRAs and TSPs at an age younger than 72.

It will also have no benefit for the 2019 RMD of those who turned 70 ½ in 2019 and had to take their first required distribution. Though the first RMD can be delayed until April 1st of the year after the year the participant turned 70 ½, it is considered a 2019 distribution and is not affected by the Secure Act, which took effect on January 1, 2020.

Roth IRAs do not require minimum distributions, though the Roth TSP does.

Another positive change from the SECURE Act is that there is no longer an age limit on contributing to a traditional IRA. Previously, an individual was precluded from making contributions (either deductible or non-deductible) to a traditional IRA beginning in the year in which they reached the age of 70 ½.

There never was an age limit to contributing to a Roth IRA. Now, as long as an individual has earned income (a requirement for contributing to any IRA) they are allowed to contribute to a traditional IRA. The income limits that effect whether or not the contributions can be deducted from income for the purpose of federal income tax remain in place.

And, of course, attorneys and accountants are happy that the SECURE Act was enacted. It increases their value because it creates more confusion in the taxpaying public! It comes as no surprise that many IRS employees refer to the Internal Revenue Code as the “Attorneys and Accountants Full Employment Act”.

Report: Understanding TSP Withdrawals

Report: Phased Retirement for Federal Employees

TSP Investors Handbook, New 6th Edition