Thrift Savings Plan Participants Should Be Aware of SECURE 2.0 Changes

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The Thrift Savings Plan (TSP) is a retirement plan established exclusively for members of the military, the Ready Reserve, and federal government employees. It is similar in benefits to a 401(k). Recent changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) 2.0 Act that affected many civilian retirement accounts have also made changes to the TSP that you need to know about.

The SECURE 2.0 Act became law in December 2022. The goal of the act, the Federal News Network says, is to make it easier to save for retirement. Some of these changes will take effect as soon as January 2024.

Roth Balances Now Have No Required Minimum Distributions

Any Roth accounts under a TSP are now free of having to take required minimum distributions (RMDs)—at any time. The account owner can leave the money in the account for their lifetime and let it continue to earn interest if they choose to do so. Other retirement accounts, such as individual retirement accounts (IRAs) and traditional 401(k)s still have RMDs.

The Age to Start Taking RMDs Has Changed

Instead of having to take RMDs when you turn 72, the age requirement has changed. As of 2023, it is not necessary to start taking mandatory withdrawals until you are 73. A date was established when the required age would change again. Starting in 2033, withdrawals will be necessary when you turn 75. This new rule only applies to people born on or after Jan. 1, 1951.

The reasoning behind the increased age is to enable you to build up a larger retirement fund before you start taking withdrawals. Many seniors now have little, if anything, saved for retirement. This change will help many retire more comfortably.

Account managers help TSP participants avoid the RMD withdrawal penalty. TSP says that if you fail to withdraw enough money for an RMD, they will send you a supplemental payment to cover the difference before the end of the year.

TSP Contribution Limits

The contribution limit for a Thrift Savings Plan in 2024 is $23,000. HR.NIH says you will not receive matching contributions if you contribute the maximum amount. Matching contributions of 4 percent are only given to those participants contributing at least 5 percent of their gross pay each biweekly period. A 1 percent contribution is automatically added each time you get paid.

Government and military employees 50 and over can also make catch-up contributions. It enables them to contribute an additional $7,500, bringing the total to $30,500. When choosing your elected contribution amounts, you should only enter one number on the form since once you have reached the standard limit, additional amounts will automatically count toward your catch-up contributions. These contributions will also continue to receive matching contributions as long as you contribute at least 5 percent of your gross pay each bi-weekly period.

The Five-Year Rule for Roth TSPs

Serving Those Who Serve says that when you open or transfer funds to a Roth account, you must wait five years before making any withdrawals. If you do not wait, there will be a 10 percent penalty on any amount withdrawn on the interest. The five-year period starts from Jan. 1 of the year the deposit is made—even if you deposit it in July. You will also face a 10 percent penalty if you withdraw any money before you are 59½ years old.

Pay Tax on Contributions Now or Later

Any contributions to a TSP account get taxed according to the type of account. TSP IRAs or 401(k)s are only taxed when a withdrawal occurs. Money contributed to the account is tax-deductible in the year of the contribution. Contributions to Roth accounts are made after tax, which enables you to make withdrawals without any taxes—even on the interest.

Rollover amounts from TSP IRAs or 401(k)s into Roth accounts are also taxed. Because of the taxes, you should make rollovers over several years rather than doing it all at once.

If you choose to have all your contributions go into a Roth account, SmartAsset reveals that your matching funds will be put into a standard TSP account. It means you will have money in both types of accounts.

Some Catch-Up Contributions Must Be Made to Roth Accounts

SECURE 2.0 requires people earning at least $145,000 annually to make TSP contributions to a Roth account. It means that all contributions in this category would be with after-tax money. The Government Executive says that because of the administration complications it would cause, retirement program managers and employers asked for a delay. The requirement has been delayed until January 2026. In the meantime, you can make contributions as you did in previous years.

Higher Catch-Up Contributions Between Ages 60–63

Starting January 2025, some TSP participants can contribute more than usual. During those four years, participants between 60 and 63 are allowed to contribute $10,000 per year.

Invest in Mutual Funds

The same year the SECURE 2.0 Act passed, TSP began offering mutual funds. This option gives more choices for people with TSP accounts. DistrictCapitalManagement mentions that the qualifications will limit who can participate because only those with $40,000 in their TSP can take advantage of the offerings and must invest a minimum of $10,000 to get started.

If you have a Thrift Savings account, talking to a financial advisor or plan manager will help you understand the details of the Secure 2.0 Act and how it affects your money. You may also want to make some changes that will enable you to save more money.

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