The end of the year can mean different things for each of us. Spending time with family by sharing the joy of the holiday season. Looking back on all that 2022 has brought us, both the good and the bad. Looking forward to hope for the New Year. For the Federal Government, tis the season to approve next year’s budget.
This week the $1.7 trillion spending bill should pass through the House and Senate to keep the government running through 2023. While most of the legislation is focused on the ‘nuts and bolts’ of keeping the lights on as it were, there is an act worth noting. Included in this bill is the ‘Secure 2.0’ act, the sequel to the 2019 original. If you have the time to pick through the more than 4,000 pages of this year’s spending bill, please do. However, if you’re looking for the cliff notes, here are some ways Secure 2.0 may impact your TSP…
While not TSP specific, the changes to the Required Minimum Distribution age are something to be aware of as you look at how your TSP fits into your retirement plan. Starting in 2023 the RMD age goes up to 73, allowing you to delay required distributions an extra year compared to now. The next increase in age does not come until ten years later in 2033 when the RMD age climbs to 75.
Since your TSP is a qualified retirement account, RMDs are part of your planning. If you were going to start taking distributions from your TSP at the start of your retirement, this change is not as impactful. Yet if you were going to live off your FERS annuity and Social Security income, along with a part-time job potentially, while letting your TSP continue to grow, these changes need to be on your radar.
The last few years have left many of us with not much in our emergency funds. Secure 2.0 addresses this by removing the 10% tax penalty on emergency withdrawals of up to $1000 a year from retirement accounts like the TSP. For TSP holders this could be an alternative to a smaller TSP Loan or using credit cards/personal loans to get by. While you’ll still have to pay income tax on that money, it may still cost far less than high interest debt options.
Section 604: Making the Roth match a potential reality
Right now, if you are using the Roth option in your TSP for your contributions realize the match is still going into your Traditional TSP account. While your contribution may be going in after taxes now and coming out tax-free later, the government match is the other way round. Secure 2.0 Section 604 clears the way for that to potentially change.
Section 604 makes it possible for employer matching contributions to go into the Roth IRA for employees who are making contributions that way. While it does not mandate the match going to the Roth it gives employers the ability to let employees choose where that money goes. It remains to be seen what the TSP administrators will do in the future, but the door would be open now.