Catch Up TSP Contributions will go to ROTH (After Tax)
Aug 31, 2023 19:06:51 GMT -5
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Post by ssaogc on Aug 31, 2023 19:06:51 GMT -5
The Setting Every Community Up for Retirement Enhancement (SECURE) Act 1.0 (passed into law in December 2019 and taking effect January 1, 2020) made some major changes to individual retirement arrangements (IRAs) and to defined contribution plans (such as 401(k) and 403(b) retirement plans and the Thrift Savings Plans (TSP)). In December 2022, SECURE Act 2.0 was passed into law. SECURE Act 2.0 contains numerous provisions that affect defined contribution plans. One of these provisions is expanded Roth defined contribution plan “catch-up” contribution opportunities. The other provision is a requirement that “high wage” individuals who make “catch-up” contribution via payroll deduction to their qualified retirement plan are required to make those contributions to the Roth (after-taxed) accounts and not to their traditional (before-taxed) accounts. For federal employees, this means that “high wage” federal employees aged 50 or older must make TSP “catch-up” contributions to the Roth TSP and not to the traditional TSP.
Both of these provisions are discussed in more detail in this column. Note that each provision has a different starting date.
“Catch-Up” Contributions Subject to Roth Treatment
Effective for tax years beginning after December 31, 2023, federal employees at least age 50 on the last day of the year and who are “high wage” TSP participants, can make TSP “catch-up” contributions only to their Roth TSP account and not to their traditional TSP account. For the purpose of this new provision under SECURE Act 2.0, a “high wage” TSP participant is a federal employee whose wages (as defined in Internal Revenue Code Section 3121(a)) during the preceding calendar year exceeded $145,000, adjusted for cost-of-living increases through the years. The following example illustrates:
Example 1. Janet, age 58, is a federal employee who contributes the maximum amount to the TSP each year. She contributes both to the traditional TSP and to the Roth TSP. During 2023, she will be contributing a maximum $30,000 ($22,500 regular contributions that all employees can make and $7,500 “catch-up” contributions) to the TSP of which $27,000 will be contributed to the traditional TSP and $3,000 will be contributed to the Roth TSP. Janet’s gross salary during 2023 will be $180,000. Assuming that the TSP contribution limits during 2024 are the same as they are during 2023, Janet will have to contribute at least $7,500 to her Roth TSP account during 2024. This is because Janet’s wages will exceed $145,000 during 2023 (and therefore Janet is considered a “high wage” TSP participant).
stwserve.com/roth-tsp-catch-up-contributions-secure-act-2/
Both of these provisions are discussed in more detail in this column. Note that each provision has a different starting date.
“Catch-Up” Contributions Subject to Roth Treatment
Effective for tax years beginning after December 31, 2023, federal employees at least age 50 on the last day of the year and who are “high wage” TSP participants, can make TSP “catch-up” contributions only to their Roth TSP account and not to their traditional TSP account. For the purpose of this new provision under SECURE Act 2.0, a “high wage” TSP participant is a federal employee whose wages (as defined in Internal Revenue Code Section 3121(a)) during the preceding calendar year exceeded $145,000, adjusted for cost-of-living increases through the years. The following example illustrates:
Example 1. Janet, age 58, is a federal employee who contributes the maximum amount to the TSP each year. She contributes both to the traditional TSP and to the Roth TSP. During 2023, she will be contributing a maximum $30,000 ($22,500 regular contributions that all employees can make and $7,500 “catch-up” contributions) to the TSP of which $27,000 will be contributed to the traditional TSP and $3,000 will be contributed to the Roth TSP. Janet’s gross salary during 2023 will be $180,000. Assuming that the TSP contribution limits during 2024 are the same as they are during 2023, Janet will have to contribute at least $7,500 to her Roth TSP account during 2024. This is because Janet’s wages will exceed $145,000 during 2023 (and therefore Janet is considered a “high wage” TSP participant).
stwserve.com/roth-tsp-catch-up-contributions-secure-act-2/
