The Thrift Savings Plan issued an announcement Wednesday it will use a two-year transition period to conform to new IRS guidance regarding how some federal employees can make catch-up contributions to their TSP account.
A provision coming out of SECURE Act 2.0, passed into law in December 2022 requires that “catch-up” contributions for employees aged 50 or older whose Social Security wages for the prior year exceed $145,000 must be made to the Roth retirement account such as the Roth TSP account. This rule under Section 603 of the SECURE Act 2.0 was supposed to have taken effect on January 1, 2024.
SEE ALSO: Some Federal Employees Required to Make ‘Catch-Up’ Contributions Only to Roth TSP in 2024
However, the IRS said in IRS Notice 2023-62 that it will provide a two-year “administrative transition period” until January 1, 2026 before retirement plans must comply with the new tax law.
“The Federal Retirement Thrift Investment Board (FRTIB) will take advantage of the full two-year transition period and implement system and process changes required to administer SECURE Act 2.0 §603 on January 1, 2026,” the TSP wrote.
“As a result, catch-up contributions that would otherwise be required to be made on a Roth basis in accordance with §603, can continue to be made on a traditional (pre-tax) basis until the provision is implemented for TSP.”
“In addition to providing this transition period, the guidance corrects the drafting error in the legislation that would have eliminated all catch-up contributions beginning in 2024,: the TSP wrote.
“It also confirms that §603 permits a plan to treat an election for traditional catch-up contributions as an election for Roth catch-up contributions for those over the wage threshold.”
For more information, see: IRS Postpones Mandatory Roth Catch-Up Retirement Contributions Until 2026