IRS announces two-year delay to TSP catch-up contribution changes
New rules requiring high-income 401(k) participants to make catch-up contributions only to Roth accounts will not take effect until 2026.
The Internal Revenue Service last week announced that it would delay implementation of new rules governing catch-up contributions in 401(k)-style retirement savings programs, including the federal government’s Thrift Savings Plan, until 2026.
Last December, Congress passed the SECURE 2.0 Act, a bill aimed at making it easier for people to save for retirement. Among the law’s provisions are reforms to expand automatic enrollment in employer-sponsored retirement plans and increasing the age at which people must begin taking required minimum distributions from their 401(k)-style retirement plans from the current 72 years old to 75.
The law also sets up new guard rails for catch-up contributions, the method by which people who are least 50 years old can contribute additional money toward their retirement accounts above the normal annual cap. By 2024, retirement plans, including the TSP, were set to require all participants making at least $145,000 per year to make catch-up contributions only via Roth—post-tax—accounts.
But employers and retirement program managers warned that they would not be able to implement the provision in time, citing the complicated nature of setting up a system that would funnel high income employees into only making Roth catch-up contributions.
In guidance issued Friday, the IRS clarified that it will set up a two-year “administrative transition period” for the new Roth catch-up contributions requirements, effectively delaying their implementation until 2026.
“The administrative transition period will help taxpayers transition smoothly to the new Roth catch-up requirement and is designed to facilitate an orderly transition for compliance with that requirement,” the IRS wrote. “The notice also clarifies that the SECURE 2.0 Act does not prohibit plans from permitting catch-up contributions, so plan participants who are age 50 and over can still make catch-up contributions after 2023.”
That means, at least for now, federal workers who make at least $145,000 annually and are eligible to make catch-up contributions through the TSP can continue to make them either as Roth contributions or as standard 401(k)-style contributions. And the TSP and other retirement program managers have an additional two years to develop and implement systems to ensure that all catch-up contributions from high income employees are Roth.