Participants in the Thrift Savings Plan are one step closer to experiencing major changes to their retirement distributions. The Securing a Strong Retirement Act is being pushed by the House of Representatives into law.
Last month on March 29th, the House passed the bill with a sweeping vote of 414 to 5. So, what exactly does this Act entail? The Secure Act 2.0 largely impacts employee retirement distribution changes. TSP participants, along with workers who have private employer-sponsored retirement plans, should be prepared to be affected by at least two major pieces of the legislation.
As for starting required minimum distributions (RMDs), the Securing a Strong Retirement Act would increase that age. This means that the age at which TSP participants are required to start distributions from their retirement accounts will simply increase overall.
While the current age is at 72 years old, the bill is set to increase the age to 75 years old in an albeit slow but gradual approach over the next 10 years. The changes for TSP participants begin in 2023. The House Rules Committee adjusted the dates include the original 2022 date for the RMD change back to 2023.
|RMD starting age||Participants affected||Years in effect|
|72||Currently 72 and older||Current|
|73||Turning 72 starting in 2023;
Turning 73 before 2030
|74||Turning 73 starting in 2030;
Turning 74 before 2033
|75||Turning 74 starting in 2033||2033 onward|
The National Active and Retired Federal Employees Association (NARFE), which is in support of the legislation, stated that the bill will aid participants in keeping their money in the market longer. That’s especially useful as consumer prices continue to rise, NARFE said.
“This legislation takes aim at our country’s looming retirement crisis and contains several provisions that benefit the retirement security of hardworking Americans, including federal employees and retirees,” National President Ken Thomas said in a letter to House lawmakers.
NARFE went on to say that the legislation will allow TSP participants to have easier time hedging against market uncertainty. With Russia’s invasion of Ukraine and international politics in such a currently volatile state, it creates a sense of uneasiness for TSP participants. Also, high inflation rates add to the insecurity about retirement accounts and savings. The Secure Act 2.0 is a plan to alleviate parts of that uncertainty.
“The House is acting on a bipartisan basis to expand automatic enrollment in companies’ retirement plans, encourage more companies to offer and contribute to their workers’ plans and allow those near retirement to save more and for longer,” House Majority Leader Steny Hoyer (D-Md.) said in a press release.
The second important part of the bill that is geared towards TSP participant changes deal with catch-up contributions for employer-sponsored plans.
What is a catch-up contribution? Catch-up contributions help participants “catch up” on retirement savings when necessary. These contributions are above the annual maximum limit, which is $20,500 for 2022.
The date for making these changes has been moved according to the Committee, and catch-up contributions will be set to begin once the bill is fully enacted.
Currently, it is up to the employer sponsor as to whether or not contributions can be made either on a Roth or on a pre-tax basis. Beginning in 2023 and in alignment with this new piece of legislation, all catch-up contributions must be made to Roth accounts.
This will invariably change the taxing of catch-up contributions. Roth contributions are made post-tax, then not taxed upon withdrawal after retirement. That differs from traditional contributions to TSP accounts, which are made pre-tax and then taxed upon withdrawal.
Another big change for a number of TSP participants is the maximum amount of annual catch-up contributions allowed, with the number increasing the catch-up contribution limit to $10,000 for those between ages 62 and 64.
Today, that catch-up contribution limit is $6,500 for TSP participants ages 50 and up. Under the new bill, those between ages 50 and 61, and those over 65, will stay at that limit.
This increase will take place in 2024 and the catch-up contributions will be indexed for inflation accordingly.
With the House voting so strongly in favor of the bill, it is urging the Senate to pass the legislation with haste so it can go to the president for signing as fast as possible.
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