Val breaks down the changes, enhancements and key features that will shape the TSP landscape for the upcoming year. He then shares practical tips and strategies to make the most of your TSP and secure a fulfilling retirement for your family.

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12.9.23: Audio automatically transcribed by Sonix

12.9.23: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Val Majewski:
Well, welcome back to The Federal Retirement Show. I'm your host, Val Majewski with American Benefits Exchange. I appreciate you taking the time out of your schedule and hope everybody had a great Thanksgiving holiday. Spending time with family, relatives, friends, whoever it is that you spend your holiday with but wanted to get in touch with you for a pretty important topic as we approach 2024 and 2024 is going to be here before we know it, and there's some important updates that you need to know as a federal employee with regard to your TSP. You may have seen some of these come across in news reports or in memos that have come out. But let me give you my synopsis of the updates of TSP for 2024. So let's dive into the information. Let's talk about the topics, and let's see what's in store for you in the coming year. So when it comes to your TSP, there's a couple things, right, that we need to go over and and how these these updates are going to affect you. Now for some of you it may not affect you at all. It may not be something that's going to, you know, really be, uh, something you even notice. But for a few or a bunch of you that are with the federal government and really curious about what to do with your TSP as you approach retirement, there's going to be some of these updates that are going to have a good or different type of effect on you.

Val Majewski:
So the first thing is the exemption of the 10% early withdrawal penalty for those that are in public safety. Now what does that mean. These are for the special groups federal law enforcement, federal firefighter, air traffic control. You all have the ability, as you probably know, to retire early, right? Earlier than a traditional federal employee, whether it's any age at 25 years of service, age 50, with 20 years of service, you are eligible to retire earlier than other federal employees. Now, typically, and in the past, there has still been a penalty applied to those that retire early under these provisions for taking out money from their TSP prior to the age of 59.5, and in other years that has been bumped back to age 55. But let me just read straight from the ruling qualified public safety employees as defined by the special groups. You can look that up. Distributions will not be subject to the 10% early withdrawal penalty if separated from service, and have 25 years of service under the plan even applies to those who have not yet reached a age 50 when separated. So it's good news that the early withdrawal penalty will not be applied to those that retire as a special group earlier, even if a before age 50, they have at least 25 years of service. Now this went into effect actually this tax, this tax year. Right. But this is part of the updates that came out as a result of the secure act 2.0 that we saw, uh, you know, in recent years.

Val Majewski:
So when this this new ruling came out, this is one of the provisions just eliminating that additional 10% early withdrawal penalty. If you need to take withdrawals from your TSP prior to previously being eligible to do so without penalty. Pretty awesome stuff. Number two Roth TSP no longer subject to RMD. So if you were or were not aware. In previous years. Even though your Roth portion of your TSP is not subject to tax, right? If you're putting money into the Roth portion of TSP, that money you've already paid taxes on, that money goes in. It can grow with interest. And when you take that money out in the future, it comes out tax free. However, if that money stayed in TSP, once you're separated from service and retired, it was also subject to RMDs, meaning both the traditional and Roth side of your TSP counted that total counted when it came to the amount of money you need to take in an RMD. Well, that rule is changed in coming forward in 2024. Your your Roth portion of your TSP will no longer be subject to RMD, so RMD calculations will only include the traditional balance prior to the employee's death. Now, what do I mean by that? Now while you're alive, while you're alive, money left in your TSP. The Roth portion will not count towards your RMD requirement. However, let's skip a couple bullet points down in when you pass, or if you pass first and money goes to your spouse, the spousal beneficiary count.

Val Majewski:
If that money is still left in TSP and is in the Roth portion, will be included in the RMD calculation. So for the federal employee while you're alive in retirement, TSP or Roth side is not included in your RMD calculation. If passed to a spousal beneficiary, then the total account balance traditional and Roth will count towards RMD. So for the employee, only the amount of money you have in the traditional side will count towards your R&D. That is effective next tax year 2024. So for those again that have been used to or thinking about, hey, I still have to take an RMD from my Roth portion of TSP that will not be the case next year. There are increased catch up limits at age 60, 61, 62, and 63. What does this mean starting January 2025? So this is an update, but it won't take effect until January 1st, 2025. Participants in TSP that are aged 60, 61, 62, and 63. Only these ages who are eligible for catch up contributions will have a higher catch up limit. Now, currently, the catch up limit is $7,500 once you hit age 50. Okay, so for those that are 15 above, you have the ability to put in an additional $7,500 in addition to the maximum contribution limit that TSP has for this age group. Starting January 1st, 2025, those age 60, 61, 62, and 63. Your limits will increase to the greater of $10,000, or 150% of the regular catch up limit.

Val Majewski:
Now, the $10,000 will be adjusted for inflation. So we may see that that limit increase, but it's a greater of $10,000 or 150% of the regular catch up limit for only those ages. Right? So for those below that, those ages or above those ages, regular catch up limits, for those in those ages, your catch up limits will be greater. Catch up contributions must be wrath if wages are greater than threshold. So what does this part mean? Well, first of all we just talked about catch up limits increasing right. Um, for certain age groups. Now what about these catch up contributions starting in 2026. So we're getting ahead of ourselves a little bit. But these are updates for 2024. With the new rule changes starting in 2026, catch up contributions must be placed into the Roth portion of TSP. If your wages are above a given threshold, right. The identified threshold now wage threshold will be defined each year. Now the time that this law was passed, the threshold amount was $145,000. So if your earned wages were over $145,000 and they continue to be going into 2026, your catch up contributions must be placed into the Roth portion of your TSP. If you fall above the wage threshold and max out your TSP contributions and you go above the max allowable limit, whatever that is, your catch up will automatically be switched to Roth no matter what bucket you're currently putting all of your money into.

Val Majewski:
So just understand that if you earn above a certain amount and we can anticipate those limits changing from year to year, that threshold changing from year to year. But if you earn above a certain amount currently as listed, it's $145,000. If you max out your TSP it contribute to catch up. Those catch up uh deposits will automatically go into the Roth bucket of your TSP account. So when it comes to catch ups, yeah, it's good to know that your limits will be going up for certain ages starting in 2025 and starting in 2026. Catch up contributions for those earning above this threshold, which we'll find out at that time, will be automatically put into the Roth bucket. A few more updates here for you just to look at 2024 as we look at the year ahead contribution limits. Currently, the contribution limit is $22,500. That will increase to 23,000 per year starting in 2024. Catch up will remain at 7500. So for those that are 50 and older, your limit now goes to 30,500. I just mentioned the catch up contribution updates that are going to happen coming in 2025 and 2026. Here's a thing that I encourage everybody to take a look at. Uh, just to to educate yourself a little more because I'm not doing a full, you know, review on any of the articles and any of the press releases that came out. But your I fund, your I fund within TSP is getting an update. The I fund used to track the, uh, eafe index.

Val Majewski:
Um, it was an international stock index. And there was, uh, stocks from 20 developed countries. Um, this new index that it's going to track and going to follow the MSCI All Country World Index increases the number of countries, the number of developed countries that the fund will invest in. Uh, the number of companies that. The AI fund will have investments in, and it's just going to track a totally different index. The idea behind this is the board. And this is just this is going to be my summarization of this, right? The Thrift Investment Board and and those that are making the decisions basically saw that the AI fund was performing at about half as much as the C and the S fund. Right. It was easily the worst performing stock fund out of the three stock funds, the CDs and the AI. The AI fund was the worst performing stock fund over the past couple decades. Um. This update will give it more exposure to different countries and different international companies and hopefully increase the performance of the iPhone. At least that's what they're thinking now. There's no guarantee, right? This will be a totally different tracking, a totally new tracking. And for those that are invested in the AI fund now, you don't have to make any switch. It will automatically switch for you. And the AI fund will now track this new index, this all country world index. But I encourage you to do your research.

Val Majewski:
Check it out. If you're going to think about investing in the AI fund or to continue to invest in the AI fund, do your due diligence. Do the research. Learn about this this new index that the AI fund will track. See if it's something that's right for you. You can talk to your investment advisor, talk to, um, you know, the folks that you get your your information from in order to see the AI fund is right for you. Also on the website. The website went through a major update last year a big facelift, a much needed facelift. They now have a loan tracker that is live on the TSP website, so not necessarily an update for 2024 because this is live. Now there is a new loan tracker on the TSP website, so this includes status updates on your loan applications. So if you applied for a loan with TSP and you want to check the status of it, and you can go in and see the live loan tracker on the TSP website and get a good idea of where you stand. So those are the the updates as I see them for 2024. Uh, the biggest thing, I think being the, uh, increased contributions that are going to be coming down the pike for catch up, obviously, the the removal of or the elimination of the early withdrawal penalty for those that retire with special groups, meaning you're in public safety and you have at least 25 years of service that gives you more access or earlier access to your TSP funds without, uh, incurring a penalty.

Val Majewski:
And then check out that new I fund index, see if it's right for you if you have any questions. If you want to review any of this, you want to go over and see how how these updates affect you, including the I fund. You can reach out to us. You can go to FederalRetirementShow.com you can fill out our form. We'd be happy to sit down with you not only talk about TSP, but go over all of your federal employee benefits. Why? Because this is our area of expertise. Hopefully by now you've seen all of our previous episodes and you understand this is our area of expertise. This is where we spend our time, uh, federal employees just like you or people that we talk to on a daily basis. Not to say that we've seen it all, but we've seen a whole lot. And we can definitely point you in the right direction should you have any questions, concerns or things that you need help with? Well, I really do appreciate you taking the time out of your day to learn about the TSP updates for 2024. As I said earlier, go to our website, Dot FederalRetirementShow.com. Fill out that form. Get in touch with us. We'd be happy to help you in any way we can. Thank you again for your time and look forward to seeing you on a future episode.

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