TSP News: Roth Conversions and I Fund Changes: One TSP Fund Up 25.5%
An in-plan Roth conversion option is coming to the TSP. Also, one TSP Fund up more than 25% in 2024.
2025 Contribution Limits Increased
For TSP investors conscientiously planning for retirement by taking advantage of the advantages offered by the Thrift Savings Plan (TSP), here is good news on how to increase your retirement income. The TSP contribution limits have gone up.
At the monthly meeting of the Federal Retirement Thrift Investment Board (FRTIB), the TSP highlighted the following information that will be applicable in 2025:
- The annual deferral limit will be $23,500.
- Catch-up contributions for those turning 50 and older will be $7,500.
- Catch-up contributions for those turning 60 to 63 will be $11,250.
The TSP website has been updated to reflect these 2025 data.
The increase of the 2025 contribution limit to $23,500 per year is an increase of 2.2% over the 2024 annual limit ($23,000).
The catch-up contribution limit for 2025 is the same ($7,500) as 2024. The catch-up contribution allows federal employees 50 and older to make this extra contribution to the TSP each year (for a total of $31,000) to increase their retirement savings further.
There is also a higher catch-up contribution limit starting in 2025 under a provision in the Secure Act 2.0. The catch-up contribution for workers aged 60, 61, 62, or 63 is going up to $11,250.
Roth In-Plan Conversion Coming to the TSP
A Roth in-plan conversion is coming to the TSP in January 2026. A Roth in-plan conversion allows TSP participants to convert pre-tax assets to Roth assets.
While there are long-term tax advantages to doing this, and these advantages can be substantial, the conversion will trigger a tax bill. However, the taxes cannot be paid with TSP assets.
This feature will allow many TSP participants to potentially have larger savings in their retirement.
Why Would You Want To Convert to a Roth Account?
With a Roth TSP, your contributions go into the TSP after taxes are taken from your check. That means you pay taxes on your contributions at your current income tax rate.
The advantage of using a Roth TSP is that you will not have to pay taxes later, probably when you are already retired and when you take out your contributions and any qualified earnings.
"Qualified earnings" are defined as meeting both Internal Revenue Code (IRC) requirements: 5 years have passed since January 1 of the calendar year when you made your first Roth TSP contribution, and you are at least age 59½, permanently disabled, or deceased.
A conversion to a Roth account can mean you will have more money in retirement. According to the Wall Street Journal: "Taxable income tends to increase for many retirees at age 73, when those born between 1951 and 1959 are required to take withdrawals from traditional retirement accounts and pay taxes at ordinary income rates on that money."
Because Roth TSP accounts are not subject to required minimum distributions (RMDs), this can help to bolster retirement savings.
When income from your federal retirement annuity and Social Security are combined, your tax bracket may increase or you may encounter the 3.8% net-investment income surtax.
Federal employees or retirees with questions about how this change would work or impact their retirement savings plans should seek guidance from a financial planner.
Electronic Delivery of Documents Available
Changes in the TSP system now allow TSP participants to choose how they will receive information.
Participants with an email address on file with the TSP will have their TSP communications sent electronically. Annual and quarterly TSP statements and most TSP notices will be delivered to their secure TSP mailbox using the "MyAccount" feature.
TSP participants can change communication preferences in their profile on the TSP site under "Manage Communications."
Under Department of Labor guidelines, TSP participants affected by this will be notified through the U.S. mail system.
I Fund Index Change Completed
In 2023, the FRTIB approved a change to the index used by the I Fund in the TSP. This change was concluded before the end of October 2024.
The new index is the MSCI ACWI IMI ex USA ex China ex Hong Kong Index. It is a collection of large, mid, and small-cap stocks in developed and emerging markets countries, but it excludes investments from China, Hong Kong, and the United States. That last point was very important due to the controversy of the last proposed change to the I Fund index. That earlier change did not exclude companies in China and Hong Kong.
The new I Fund index expands coverage of non-US equity markets from 55% under the former MSCI EAFE Index to 90% under the new MSCI ACWI IMI ex USA ex China ex Hong Kong Index.
How Are Your TSP Investments Performing This Year?
The S&P 500 is up about 24% this year. The C Fund, based on the S&P 500 stock index, is up about 25.5% for the year.
Underlying the robust return are favorable articles in the media about artificial intelligence and how it will be used and how it may impact companies taking advantage of this new technology. Also, there has been considerable optimism that lower inflation will mean lower interest rates. Lower rates typically boost stocks, and the Federal Reserve has slashed its benchmark rate twice since September.
Federal Reserve officials are now questioning the approval of further cuts as more data indicate that the economy is still strong.
Here is how the TSP Funds have performed so far in November and in 2024.
Favorable TSP Returns Continue in November and 2024
| Fund | Month-to-Date | Year-to-Date |
|---|---|---|
| G Fund | 0.24% | 3.90% |
| F Fund | -0.35% | 1.57% |
| C Fund | 3.80% | 25.52% |
| S Fund | 7.44% | 20.70% |
| I Fund | -1.72% | 5.47% |
| L Income | 0.76% | 7.29% |
| L 2025 | 0.85% | 8.27% |
| L 2030 | 1.47% | 12.01% |
| L 2035 | 1.59% | 12.79% |
| L 2040 | 1.71% | 13.57% |
| L 2045 | 1.81% | 14.24% |
| L 2050 | 1.92% | 14.93% |
| L 2055 | 2.32% | 17.48% |
| L 2060 | 2.32% | 17.48% |
| L 2065 | 2.32% | 17.47% |
| L 2070 | 2.30% | N/A |
Groups.io Links:
You receive all messages sent to this group.
View/Reply Online (#3819) | Reply to Group | Reply to Sender | Mute This Topic | New Topic
Your Subscription | Contact Group Owner | Unsubscribe [prefander.leadersworkshop@blogger.com]
Belum ada komentar untuk "[TSPStrategy] TSP News: Roth Conversions and I Fund Changes: One TSP Fund Up 25.5%"
Post a Comment