SECURE 2.0 requires highly compensated employees to make any catch-up contributions as Roth contributions. Image: FabrikaSimf/Shutterstock.com
By: John GrobeWe recently discussed the fact that, beginning in 2026, the Thrift Savings Plan will allow in-plan Roth conversions. This will let all TSP participants convert money from their traditional balance into their Roth balance. If they don’t already have a Roth balance, they can establish one with the conversion.
Currently, conversions to Roth accounts have to be made to Roth IRAs (not the Roth TSP) and current employees who are younger than 59 ½, or do not have a financial hardship cannot convert their TSP to an IRA (Roth or otherwise).
There’s another change coming in January 2026 that affects current employees and the Roth TSP. SECURE 2.0 requires highly compensated employees to make any catch-up contributions as Roth contributions.
This was due to become effective last year but the implementation date was delayed until January 1, 2026, after retirement plan custodians and record-keepers complained that they would not be able to implement this change in 2024.
This change will not affect a lot of us for two reasons:
1) Catch-up contributions can only be made by those participants who are 50 or older (including those who turn 50 during the year); and
2) This law’s definition of highly compensated employees covers those who make more than $145,000 a year.
FSAs going to waste?
On another note, the Employee Benefits Research Institute estimated that participants in Flexible Spending Accounts forfeited roughly $4.5 billion in 2023 and $5.1 billion in 2022. That’s a lot of money gone to waste.
FSAs are designed to let employees (they’re not available for retirees) set aside money on a pre-tax basis for unreimbursed healthcare and dependent care expenses, but the money has to be spent by the end of the year (though health care FSAs allow a small amount to be carried over into the next year).
Those who have these plans need to monitor how much is left in them as the end of the year approaches. What good is setting pre-tax money aside if we forget to use it?
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See also,
Legal: How to Challenge a Federal Reduction in Force (RIF) in 2025
How to Handle Taxes Owed on TSP Roth Conversions? Use a Ladder
The Best Ages for Federal Employees to Retire
Best States to Retire for Federal Retirees: 2025
Retention Standing, ‘Bump and Retreat’ and More: Report Outlines RIF Process
