Starting 2024, SECURE 2.0 set new rules that will require TSP participants who make more than $145,000 a year to place catch-up contributions into the Roth TSP. The changes have been met with strong opposition from employers who would have to enact new systems to their retirement plans in such a short time period.
The IRS recently announced that it would be delaying the new catch-up rule to allow for a 2-year transition period. After hearing the IRS and TSP announcement, it appears TSP participants can continue to make traditional, pre-tax catch-up contributions, regardless of income, until 2026. You can find the TSP announcement here: https://www.tsp.gov/agency-service-reps/announcements/
On August 25th, 2023, the IRS released the following statement: “Today, the Internal Revenue Service announced an administrative transition period that extends until 2026 the new requirement that any catch-up contributions made by higher‑income participants in 401(k) and similar retirement plans must be designated as after-tax Roth contributions.
At the same time, the IRS also clarified that plan participants who are age 50 and over can continue to make catch‑up contributions after 2023, regardless of income.
Today’s announcements were included in Notice 2023-62PDF, now posted on IRS.gov. This notice provides initial guidance for section 603 of the SECURE 2.0 Act, enacted in December 2022. Under that provision, starting in 2024, the new Roth catch-up contribution rule applies to an employee who participates in a 401(k), 403(b) or governmental 457(b) plan and whose prior-year Social Security wages exceeded $145,000.
The administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement. The notice also clarifies that the SECURE 2.0 Act does not prohibit plans from permitting catch-up contributions, so plan participants who are age 50 and over can still make catch-up contributions after 2023.”
More Info on SECURE 2.0
There are many sweeping changes that have gone into effect or are set to be implemented in the future because of SECURE 2.0. For more information, check out our article on the changes that will have the biggest impact here: SECURE 2.0 – Big Changes To Retirement Plans
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