FERS Employees:
Don't Miss Out on Agency Matching TSP Contributions in 2013

November 27, 2012
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FERS employees who participate in the Thrift Savings Plan (TSP) and their contributions reach the IRS elective deferral limit before the last pay date of the year, will not receive all of the matching contributions to which they would otherwise be entitled.

To plan their 2013 TSP contributions, FERS employees can use the calculator, "How much can I contribute?" to ensure they don't leave any money on the table. 

The online calculator is available here.

The TSP also recently released an updated fact sheet regarding the annual limit of TSP contributions. Highlights are below:

What are elective deferrals?

Elective deferrals are amounts that you ask your employer to deduct from your pay and contribute on your behalf to an employer-sponsored retirement plan. All tax-de¬ferred traditional contributions that you elect to contrib¬ute to the TSP and all Roth after-tax contributions that you elect to contribute to the TSP are elective deferrals.

The combined total of your tax-deferred traditional and Roth after-tax contributions (excluding catch¬up contributions) cannot exceed the elective deferral limit in any year.

Elective deferrals do not include Agency Automatic (1%) or Agency Matching Contributions because those contributions are not considered part of your pay.

What is the annual limit on elective deferrals?

Section 402 of the Internal Revenue Code (IRC) limits the amount of income you may elect to defer under all employer-sponsored retirement plans during a tax year. (For most employees, a tax year is January 1 through December 31.) The elective deferral limit for 2012 is $17,000. The 2013 limit is $17,500.

What happens to my employee contributions when the annual limit is reached?

When the annual limit is reached, your employee contributions toward the elective deferral limit must be suspended for the remainder of the year. The TSP system will not allow any employee contribution to be processed that will cause the total amount of employee contributions for the year to exceed the annual limit. Your payroll office must ensure that your employee contributions au¬tomatically resume the first pay date in the following year.

What happens to my Agency Matching Contributions when the annual limit has been reached?

If you are a FERS employee, your Agency Matching Contributions are also suspended when the annual limit on elective deferrals has been reached. Agency Matching Contributions are based on the amount of employee contributions that you make each pay period. If there are no employee contributions in a pay period, there can be no Agency Matching Contributions.

What happens to my Agency Automatic (1%) Contributions when my employee contributions and Agency Matching Contributions are suspended?

If you are a FERS employee, your agency must continue to submit Agency Automatic (1%) Contributions even though your employee contributions and Agency Matching Contributions are suspended. As a FERS employee, you are entitled to receive Agency Automatic (1%) Contri¬butions whether or not you make employee contributions.

Does it make a difference if I reach the annual limit before the end of the year?

Yes. If you are a high-salaried FERS employee, you should keep the annual contribution limit in mind when deciding how much you will contribute to your TSP account each pay period. If you reach the annual maximum too quickly, you could lose some Agency Matching Contributions because you only receive Agency Matching Contributions on the first 5 percent of your basic pay that you contribute each pay period. If you reach the annual limit before the end of the year, your contributions (and consequently your Agency Matching Contributions) will stop. (If you are purposely making larger contributions early in the year in an attempt to maximize your earnings, be aware that the amount you could lose in Agency Matching Contributions would, in all likelihood, be far greater than the value of the added earnings you might receive by making employee contributions sooner.)

How can I make the maximum employee con-tribution and still receive the maximum Agency Matching Contribution each year?

To receive the maximum Agency Matching Contribution, you must contribute at least 5 percent of the basic pay you earn each pay period during the year. (The first 5 percent of your basic pay each pay period is matched -- dollar-for¬dollar on the first 3 percent and 50 cents on the dollar for the next 2 percent.)

To determine a dollar amount you can contribute each pay period so that your contributions are spaced out over all the (remaining) pay dates in the year, use the Elective Deferral Calculator on the TSP web site (http://www.tsp.gov).

If I make up employee contributions that my agency or service should have made in a previous year, will they count against this year's elective deferral limit?

No. Employee contributions are subject to the IRC elective deferral limit for the year in which the contributions should have been made. If, due to an error, your agency or service failed to make your employee contributions in a previous year and you make up those contributions this year, your makeup contributions will not count against this year's elective deferral limit.

What about catch-up contributions? Do they count against the regular IRC elective deferral limit?

No. Catch-up contributions are payroll deductions that participants who are age 50 or older may be eligible to make in addition to regular employee contributions. You need to make a separate election to request them, and they do not count against the IRC elective deferral limit. However, each year, the IRC limits the total amount of regular and catch-up contributions an employee can make. (For example, in 2012, total contributions cannot exceed $22,500: $17,000 in regular contributions, and $5,500 in catch-up contributions; in 2013, they cannot exceed $23,000: $17,500 in regular contributions, and $5,500 in catch-up contributions.). See the fact sheet, Catch-Up Contributions, for more information on http://www.tsp.gov

How does the TSP apply the limits if I contribute to both a civilian and a uniformed services TSP account?

The elective deferral limit applies to the total contributions you make during the year to both accounts. During the year, the TSP will apply the limit to each account separately and will not allow you to contribute an amount to either account that exceeds the limit. In January, the TSP will check to see whether your combined contributions to both accounts exceeded that limit and, if so, it will then return any excess contributions, along with attributable earnings on those contributions. The TSP will return excess contributions and earnings first from the contributions you made to your uniformed services TSP account. If you made both traditional and Roth contributions during the year, the excess contributions and earnings returned to you will include a proportional amount from your Roth and traditional balances.

The TSP will apply the same process to catch-up contributions made to both accounts that exceed the separate catch-up contribution limit.

Note: Tax-exempt contributions made to a uniformed services account while deployed to a designated combat zone do not count toward the IRC elective deferral limit. However, Roth catch-up contributions made while earning tax-exempt pay will count toward the catch-up contribution limit.

To download the complete fact sheet from the TSP, go to:
https://www.tsp.gov/PDF/formspubs/oc91-13.pdf