SECURE Act 2.0 Legislation Affecting the TSP and IRAs Starting January 1, 2024
Increase in TSP Required Beginning Date to Age 73
Example 1. Dawn is a federal employee, working in Washington, DC. Her 2023 “adjusted basic pay”, as shown on her most recent SF 50 (Notice of Personnel Action) is $102,450. Based on a 2024 federal pay increase of 5.31 percent for federal employees working in the Washington DC area, Dawn’s 2024 “adjusted basic pay” will increase by 5.31 percent (1.0531 times $102,450) to $107,890. Dawn should receive an updated SF 50 reflecting the 5.31 percent pay increase sometime in late January or early February 2024.
Other Federal Employee Benefits Affected by the 2024 Pay Raise
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The following table shows the RBD for retired TSP participants:
| Retired TSP Participant Birthdate | Retired TSP Participant RBD |
| Before July 1, 1949 | April 1 following the year the TSP participant became age 70.5. |
| Between July 1,1949 and December 31, 1950 | April 1 following the year the TSP participant became age 72. |
| Between January 1,1951 and December 31, 1959 | April 1 following the year the TSP participant becomes age 73. |
| After December 31, 1959 | April 1 following the year the TSP participant becomes age 75. |
As noted above, TSP RMD rules apply to retired TSP participants. Those TSP participants who have reached their RBD and continue working in federal service are not required to take their TSP RMD. However, if a TSP participant owns traditional IRAs and/or owns a qualified retirement plan account (such as a 401(k)-retirement plan that he or she no longer participates in), then upon reaching his or her RBD, the TSP participant must take a separate traditional IRA RMD and/or a separate qualified retirement plan RMD. The following example illustrates:
Example 1. During 2004, Charlene is a federal employee. Charlene was born September 13,1951 and will reach her RBD of age 73 on September 13, 2024. Charlene is a TSP participant and also owns traditional IRAs. Because Charlene continues working in federal service during 2024, she is not required to take a TSP RMD for 2024. However, she must take a traditional IRA RMD for 2024. Her first traditional IRA RMD for 2024 must be taken no later April 1, 2025.
For those TSP participants who were born during 1951 (January 1 - December 31, 1951) and who have retired from federal service, the year 2024 is the first year that they must take a TSP required minimum distribution (RMD). Although they have until April 1,2025 to take their first TSP RMD, they are advised to take their first TSP RMD by December 31, 2024. The reason is that if they waited until the first three months of 2025 (January, February, March) to take their first TSP RMD, they would have to take two TSP RMDs during calendar year 2025. One TSP RMD would be for the year 2024 and the second TSP RMD would be for calendar year 2025, due no later than December 31, 2025. Taking two TSP RMDs in the same year could push the TSP participant into a higher federal and state marginal tax bracket because of the additional taxable income resulting from taking two TSP RMDs.
Those TSP participants born during 1951 who are current federal employees and who intend to retire from federal service during 2024 will have until April 1,2025 to take their first TSP RMD. Their first year TSP RMD will be calculated based on their traditional TSP account balance only. Specifically, the 2024 TSP RMD will be calculated using the traditional TSP account balance as of December 31,2023, divided by a life expectancy factor from the IRS’ Uniform Lifetime Table. The following example illustrates:
Example 2. Charles is a federal employee and will become age 73 on June 15, 2024. He intends to retire on July 29,2024 with 46 years of federal service. Charles’ traditional TSP balance as of December 31,2023 was $700,000 and his Roth TSP balance as of December 31,2023 was $250,000. When Charles retires from federal service on July 29, 2024, he must take his first TSP RMD no later than April 1, 2025. His first TSP RMD will be calculated as follows:
$700,000 (traditional TSP account balance as of 12/31/2023)/26.5 (life expectancy factor1) = $26,415
1 from IRS Uniform Lifetime Table [See IRS Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs)]
TSP RMD Rules No Longer Apply to the Roth TSP
As mentioned above, effective January 1, 2024, RMD rules no longer apply to Roth designated retirement accounts including the Roth TSP. This means that any current retired TSP participant who has reached his or her required beginning date (RBD) (see table above) will not have his or her Roth TSP account balance included in the annual calculation of his or her Roth TSP RMD. Prior to tax years before January 1, 2024, the Roth TSP account balance was included in the calculation of the TSP RMD.
Roth IRA owners are not subject to RMD rules. This has always been the case since Roth IRAs started in 1998. For that reason, prior to the passage of SECURE Act 2.0, retired TSP participants with Roth TSP accounts were advised to rollover their Roth TSP accounts to a Roth IRA at least one year before the year they reached their RBD. In so doing, they would remove the Roth TSP account from the calculation of the TSP RMD. With the passage of SECURE Act 2.0, and the new rule effective January 1,2024 that the Roth TSP is not included in the TSP RMD calculation, this rollover is not necessary. The only time that a Roth TSP account has to be distributed is when a non-spousal beneficiary of the Roth TSP account has been named. At the death of the Roth TSP participant, the entire Roth TSP account has to be withdrawn within five years of the death of the Roth TSP participant. But no federal and/or state income taxes need to be paid by the non-spousal Roth TSP beneficiary.
A spousal beneficiary of a Roth TSP account is not required to withdraw the inherited Roth TSP account. The surviving spouse can keep the account as a “beneficiary Roth TSP” account and is not required to withdraw any of the money.
IRA “Catch-Up” Contribution Amount Indexed Annually to Inflation
Since 2001, individuals aged 50 and older have been able to contribute extra amounts to their IRAs, traditional IRAs, Roth IRAs, or a combination of the above. From 2001 through 2007, the maximum catch-up amount was $500. Since 2008, the maximum catch-up amount has been $1,000.
For the 23 years that the IRA catch-up contribution has been available to eligible IRA owners, the catch-up contribution limit amount has not been indexed to inflation. Beginning in 2024, the IRA catch-up contribution limit amount will be indexed to inflation.
A provision passed as part of SECURE Act 2.0 that was supposed to have become effective on January 1, 2024 (but postponed until January 1, 2026) was catch-up contributions from a qualified retirement plan, (including the TSP) from employees whose annual Social Security wages exceed $145,000 will have to be made to the Roth TSP and not to the traditional TSP.
TSP participants aged 50 and older are eligible to make “catch-up” contributions. For 2023 and 2024 the maximum catch-up contribution amount is $7,500. For 2024, all TSP participants can contribute a total of $23,000 to the TSP. They can contribute to the traditional TSP, the Roth TSP, or to a combination of both accounts. TSP participants who will be at least age 50 as of December 31, 2024, can contribute a maximum $30,500 ($23,000 plus $7,500 catch-up contribution) to the traditional TSP, to the Roth TSP or to a combination of both accounts.
Had the provision in SECURE Act 2.0 become law, all TSP “catch-up” contributions must be designated as Roth contributions, applicable to TSP participants whose Social Security wages exceed $145,000 in the preceding year (indexed for inflation after 2024). For example, a TSP participant aged 50 or older whose Social Security wages (as shown on Box 3 of their W-2 statement) is $165,000, can only contribute the “catch-up” amount to their Roth TSP account and not to their traditional TSP account.
As a result of hearing from qualified retirement plan administrators needing more time to implement this provision of SECURE Act 2.0, the IRS delayed the implementation of the provision until January 1, 2026.
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Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
