Update: Secure Act affects on tSP

Section 1: Regulatory Context

The SECURE 2.0 Act (Division T of the Consolidated Appropriations Act, 2023) contains over 90 provisions aimed at modernizing retirement savings. For federal employees, these changes are primarily executed through updates to Title 5 of the U.S. Code and specific IRS tax code sections, such as Section 603 (Roth catch-up requirements) and Section 107 (RMD age adjustments). These mandates require the Federal Retirement Thrift Investment Board (FRTIB) and agency payroll providers to implement new system logic for contribution processing and distribution calculations to maintain plan compliance.

Section 2: If/Then Scenarios

• If an active participant is age 50 or older and had FICA wages exceeding $150,000 in the previous year (2025), then all catch-up contributions made in 2026 must be designated as Roth (after-tax).
• If a participant turns age 60, 61, 62, or 63 in 2026, then they are eligible for a higher “super” catch-up limit of $11,250, compared to the standard catch-up limit of $8,000.
• If a retired participant holds a Roth TSP balance, then as of 2024, that balance is entirely excluded from the calculation of their Required Minimum Distribution (RMD).
• If a participant is a qualified public safety employee with at least 25 years of service in a TSP-eligible position, then they may be exempt from the 10% early withdrawal penalty upon separation, regardless of age.

Section 3: System Integration

The TSP’s “Spillover” method for catch-up contributions remains the primary integration point for these changes. For high-income earners, agency payroll systems (like Employee Express or myPay) must automatically transition elective deferrals to Roth catch-up status once the $24,500 elective deferral limit is met. The TSP system also integrates with IRS life expectancy tables to reflect the new RMD starting age of 73 (increasing to 75 in 2033) for separated participants.

Section 4: 3-Step Action Plan

1. Audit Prior-Year Wages: Review your 2025 W-2 (Box 3, FICA wages) to determine if you meet the $150,000 threshold that mandates Roth catch-up contributions for 2026.
2. Verify Age-Based Limits: If you are between ages 60 and 63, confirm through your payroll portal that your contribution election is set high enough to utilize the enhanced $11,250 catch-up limit.
3. Review RMD Strategy: For separated participants near RMD age, verify that your Projected Distribution accounts only for your Traditional balance, as Roth balances no longer require lifetime distributions.