
On January 10, 2025, the IRS issued proposed regulations that facilitate the implementation and operations of one of the provisions passed as part of SECURE 2.0. This provision is that effective January 1, 2026, qualified retirement plan participants (this includes 401(k), 403(b) and 457 retirement plans) who are high wage earners can make “catch-up” constitutions only to the Roth account. This column discusses how the proposed regulations will affect Thrift Savings Plan (TSP) participants.
Two top takeaways from the proposed regulations
- Although previously delayed when the payroll processing industry and the IRS were not prepared for the rapid implementation of Section 03 of SECURE Act 2.0 on January 1, 2024, all signs point towards the January 1,2026 date implementation. No later than January 1, 2026, federal employees, aged 50 and older and earning over $145,000 in the previous year may make “catch-up” contributions (“catch-up” contributions limited to $7,500 during 2025) only to the Roth TSP and not to the traditional TSP. Any other (non - “catch-up”) contributions to the TSP (that is, elective deferral contributions limited to $23,500 during 2025) can be made to the traditional TSP and/or to the Roth TSP.
- Determining the earnings/wage threshold for a federal employee. The wage earnings/wage threshold is based on Social Security (FICA) wages paid to a federal employee. Social Security wages appear in Box 3 of an employee’s W-2 statement. For those federal employees who are not covered by Social Security (such as CSRS-covered employees), the threshold is based on Medicare wages. Medicare wages appear in Box 5 of an employee’s W-2 statement. The threshold is not prorated; a federal employee who is hired for only a portion of the prior year and who earns less than the threshold will not be subject to the mandatory Roth TSP catch-up requirement in the following year.
Mandatory Roth TSP contributions for federal employees who are high wage earners.
This new provision coming out of SECURE Act 2.0 means that starting January 1, 2026, all federal employees aged 50 or older and who earned more than $145,000 (indexed) in Social Security wages during 2025 can make “catch-up” contributions only to the Roth TSP. Those federal employees aged 50 and older whose Social Security wages (or Medicare wages for CSRS employees) are less than $145,000 during 2025, have the option of making catch-up contributions either to the traditional TSP or to the Roth TSP.
During 2025, the TSP may treat an election by a federal employee aged 50 and older to make “catch-up” contributions to the traditional TSP as an election to make “catch-up” contributions to the Roth TSP if the employee is potentially an impacted TSP participant with respect to mandatory Roth TSP “catch-up” contributions. The following example illustrates:
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Example 1. Janet is over 53 and is a FERS-covered employee earning $175,000 during 2025. Janet plans to contribute $23,500 to the Roth TSP and $7,500 to the traditional TSP during 2025. Janet’s FEHB program health insurance premiums during 2025 will total $8,000; her FEDVIP dental insurance premiums will total $3,000 and her health care flexible spending account (HCFSA) contributions will total $3,300. Janet’s taxable wages for 2025 (Box 1 of her W-2 statement) will be $175,000 less $8,000 less $3,000 less $$3,300 less $7,500, or $153,200. Janet’s Social Security wages for 2025 (Box 3 of her W-2 statement) will be $175,000 less $8,000 less $3,000 less $3,300, or $160,700.
Since Janet’s 2025 Social Security wages will exceed $145,000, the TSP will treat Janet’s election to make her 2026 “catch-up” contribution to the Roth TSP.
For purposes of determining the earning threshold for an impacted federal employee, the wage threshold is based on Social Security (FICA), wages paid to the impacted federal employee in the prior year by the federal government (civilian employee). If a federal employee is also in the Ready Reserves of the Uniformed Services and contributes to the Uniform Service TSP when the employee is on active duty, then the wages page to the employee while on active duty will count towards the wage threshold. The following example illustrates:
Example 2. Michael, age 51, is a federal employee earning $150,000 during 2025. Micheal is also enrolled in the FEHB health insurance program and expects to pay $11,000 in FEHB program health insurance premiums during 2025. His Social Security wages are expected to be $150,000 less $11,000 or $139,000. Michael is also a member of the Ready Reserves and expects to earn $8,000 while on active duty during 2025. The $8,000 wages are subject to FICA and considered Social Security (FICA) wages. Combined with his 2025 federal government Social Security wages of $139,000, Michael’s total Social Security wages during 2025 will be $139,000 plus $8,000, or $147,000. Since Michael’s 2025 Social Security wages will exceed $145,000, Michael’s 2026 TSP “catch-up” contributions have gone into the Roth TSP.
How will mandatory Roth TSP “catch-up” contributions affect the Roth TSP participant’s eligibility to contribute to a Roth IRA?
Federal employees are also eligible to make annual contributions to a Roth IRA. However, Roth IRA annual contributions are limited by the Roth IRA owner’s annual adjusted gross income (AGI). The fact that a Roth IRA owner’s AGI exceeds the Roth IRA AGI contribution limit in any year (thereby prohibiting from contributing to a Roth IRA) will not preclude the Roth IRA owner who is a federal employee from making mandatory Roth TSP “catch-up” contributions. Note that a retired Roth TSP participant (no matter the amount of their annual AGI) has the option to directly rollover all or a portion of their Roth TSP account to a “rollover” Roth IRA account.
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.

Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
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.