The 4 New Benefits The Secure Act 2 0 Gives Federal Employees

Summary

The video script by financial planner D HW outlines key changes for federal employees under the Secure Act 2.0. From 2025, employees aged 60 to 63 can contribute more to the TSP, with a catch-up limit of $34,250. The Roth TSP is now exempt from required minimum distributions (RMDs), giving more control over retirement funds. Penalties for missing RMDs have been reduced from 50% to 25%. Special provision federal employees can access their TSP without a 10% penalty if they retire under 50 with 25 years of service. These updates aim to enhance financial planning and flexibility for federal workers.

Takeaways

• 📅 The Secure Act 2.0 was passed in late 2022, introducing changes that are not well understood by many federal employees.
• 💼 Federal employees aged 60 to 63 can contribute more to the TSP starting in 2025, with catch-up contributions potentially being higher than for those under 60.
• 💰 The specific contribution amounts may be subject to inflation adjustments, with a 2025 example given as $34,250 for ages 60 to 63 compared to $30,500 for someone aged 55.
• 🔄 The Roth TSP is no longer subject to Required Minimum Distributions (RMDs), allowing individuals to keep funds in the account for as long as they wish.
• 🚫 Previously, the Roth TSP was subject to RMDs, requiring withdrawals in one's 70s, but this is no longer the case post-Secure Act 2.0.
• 📉 The penalty for not taking the correct RMD amount from traditional pre-tax accounts has been reduced from 50% to 25%, although it is still a significant penalty.
• 🔍 The age at which RMDs begin has shifted from 70.5 to either 72 or 73, depending on when one reaches their 70s.
• 🎓 Special provision federal employees retiring before 50 can now access their TSP without a 10% penalty, provided they meet full retirement criteria under special provisions.
• 👴 This change in penalty does not apply to regular federal employees but only to those classified as special provision federal employees.
• 🔑 The speaker, D HW, is a financial planner who serves federal employees and aims to keep them updated on these changes as they are implemented.
• 📚 Additional resources and tips are available in the description of the video, most of which are free for viewers to utilize.

Q & A

What is the Secure Act 2.0 and when was it passed?

The Secure Act 2.0 is a legislation that includes provisions affecting retirement savings, which was passed at the end of 2022.

What is the significance of the age range 60 to 63 for federal employees under the Secure Act 2.0?

Federal employees aged 60 to 63 can make larger catch-up contributions to the TSP starting in 2025, with the specific amount subject to adjustment based on inflation.

What was the catch-up contribution limit for federal employees aged 60 to 63 in 2025 according to the script?

In 2025, federal employees aged 60 to 63 can contribute up to $34,250, which is higher than the limit for others, such as $30,500 for someone aged 55.

How has the Secure Act 2.0 changed the rules for the Roth TSP regarding Required Minimum Distributions (RMDs)?

Prior to the Secure Act 2.0, the Roth TSP was subject to RMDs starting at a certain age. The new rule allows individuals to keep the money in their Roth TSP for as long as they like without being forced to withdraw it.

What are Required Minimum Distributions (RMDs) and how has the penalty for not taking them changed?

RMDs are mandatory withdrawals from pre-tax retirement accounts like traditional TSP and IRAs starting at age 73 or 75. The penalty for not taking the RMD has been reduced from 50% to 25% of the amount that should have been withdrawn.

Why might the reduction of the RMD penalty be considered good news?

The reduction of the RMD penalty to 25% is considered good news because it's a smaller financial penalty for those who forget to take their RMDs, although it's still important not to overlook them.

What special provision has been made for federal employees who retire before the age of 50 under the Secure Act 2.0?

Special provision federal employees who retire before 50 and qualify for full retirement under special provisions can now access their TSP without the usual 10% penalty that was previously in place.

Who is not affected by the special provision for federal employees retiring before 50 under the Secure Act 2.0?

Traditional, non-special provision federal employees are not affected by this change and will continue to be subject to the previous rules regarding penalties for early withdrawal from the TSP.

What is the role of the financial planner in the script and how can they assist federal employees?

The financial planner, identified as D HW, serves federal employees by providing insights and advice on how to make the most of their retirement benefits, including navigating the changes brought by the Secure Act 2.0.

What resources are available for federal employees to learn more about the Secure Act 2.0 and maximize their benefits?

There are helpful resources available in the description of the video, most of which are free, that can provide federal employees with more information and guidance on the Secure Act 2.0 and retirement planning.