Well, it’s all changing. Just as you get used to the rules of the game, the rules change.
On December 29th, 2022, the Secure Act 2.0 passed into law and it is chock-full of changes that affect federal employees. Here are the biggest changes you need to know.
Things Are Brand New
Whenever changes happen, it takes time to see how they will actually play out in practice.
So while all of the following changes are in this new law, there will certainly be more details to come as these changes are implemented.
Note: Some of these changes are effective immediately while others are delayed.
The Big Ones
1. Catch up contributions are required to go into Roth TSP if wages are above $145,000.
As you know, if you are 50+ you are able to put extra money into the TSP (a total of $30,000 in 2023). However, this rule will force those with incomes over $145,000 to put these catch up contributions into the Roth TSP instead of the Traditional.
2. You can have your agency’s matching contributions go into the Roth TSP.
Before this change, your agency’s matching contributions always went into the traditional TSP. This change will give you the option to put them into the Roth TSP if you desire.
Here are the big differences between the Traditional TSP and Roth TSP.
3. Special Catch up contribution limit for age 60, 61, 62, and 63.
This change allows you (if you are between age 60-63) to put even more into your TSP above and beyond the current catch up contributions. As of now, it seems it will be 150% of normal catch up.
4. RMD (Required Minimum Distribution) age rises to 73 and 75.
Before this change, the RMD age was 72. This means people have more time before they are forced to remove money from their traditional retirement accounts.
The new age will be 73, beginning on January 1, 2023, and then age 75 on January 1, 2033.
5. The Roth TSP will no longer be subject to RMDs.
Before, many federal employees would move their Roth TSP to a Roth IRA to avoid RMDs. However, the Roth TSP will no longer require RMDs just like a Roth IRA.
6. Special provisions can get into TSP before 50 if they have 25 years of service.
Previously, special provision federal employees could only get into their TSP right away (without penalty) if they retired after 50 which put those that retired before 50 in a tight spot.
This new rule allows them to access their TSP right away assuming they are eligible for retirement.
Other Notable Changes in the SECURE Act 2.0
- A new ‘Emergency Savings Account’ can be attached to the TSP allowing an easier way to save/access an emergency fund. We’ll see how this is actually implemented.
- The missed RMD penalty reduced to 25% from 50%
There are hundreds of other changes in the Secure Act 2.0 but as of today, these are the most important ones for federal employees.