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Articles | Federal Employees Should Make 2013 TSP Elections Prior to Year End
Federal Employees Should Make 2013 TSP Elections Prior to Year End
With only a few days remaining in 2012, many employees are focusing on usual
year end tasks, including preparing for the holidays and perhaps making some tax
moves to save on 2012 income taxes.
Year end also is the best time for employees to decide how much they want to
contribute to the Thrift Savings Plan (TSP) next year and which TSP account(s)
they want to contribute to -- traditional and/or Roth. This column discusses
these choices and why any changes should take effect on the first pay date in
The IRS announced that the elective deferral limit for 2013 --- the most that
an employer can deduct from an employee's salary and put into an
employer-sponsored retirement plan such as a 401(k), 403(b) or the TSP ---
will increase from $17,000 (in effect during 2012) to $17,500. All traditional
TSP contributions deducted from an employee's before-taxed salary, and all Roth
TSP contributions deducted from an employee's after-taxed salary, are considered
The combined total of an employee's tax-deferred traditional and Roth
after-tax contributions excluding "catch-up" contributions cannot exceed the
elective deferral limit of $17,500 during tax year 2013 - January 1 through
December 31, 2013.
Elective deferrals do not include the Agency Automatic (1 percent of an
employee's gross salary) or the Agency Matching Contributions (maximum 4
percent) that FERS-covered employees receive. This is due to the fact that these
agency contributions are not considered part of an employee's pay. Traditional
contributions from tax-exempt pay earned in a combat zone for member of the
Uniformed Services are also not included as part of the elective deferral limit.
"Catch-up" contributions -- maximum $5,500 during 2013 -- are also deducted from
an employee's salary but are not included as part of the annual elective
When the annual limit for elective deferrals is reached, an employee may no
longer contribute to the TSP for the remainder of the calendar 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 - $17,500 during 2013.
When a FERS employee reaches the elective deferral limit during the year, the
employee's agency matching contributions are also suspended for the rest of the
calendar year. Agency matching contributions are based on the amount of employee
contributing that an employee makes each pay period. If there are no employee
contributions in a pay period, then there cannot be any agency matching
A FERS employee's agency must continue to submit agency automatic (1 percent)
even though employee contributions and agency matching contributions are
Since CSRS and CSRS Offset employees do not receive agency matching
contributions, they need not be concerned when during the year they reach the
elective deferral limit.
The elective deferral limit of $17,500 in effect during 2013 applies to the
total contributions an employee makes to a civilian and a uniformed services TSP
account. During the year, the TSP will apply the elective deferral limit to each
amount separately and will not allow an employee to contribute an amount to
either account that exceeds the limit. In January, the TSP will check to see
whether an employee's combined contributions to both accounts exceeds the
elective deferral limit and, if so, will then return any excess contributions,
along with any earning attributable on those contributions.
The TSP will apply the same process to "catch-up" contributions made to both
accounts that exceed the separate "catch-up" contribution limit.
The TSP provides on its Web site an "elective deferral limit" calculation
that allows a FERS employee to make the maximum employee contribution and still
receive the maximum agency matching contribution. The worksheet is reproduced
here. FERS employees are encouraged to use this calculator as soon as possible
in order to have the optimum amount withdrawn starting with their first paycheck
in early January 2013. The worksheet is reproduced here:
Worksheet to Maximize the Amount of Agency Matching
Example. The example below applies to a FERS employee who is paid on a
biweekly basis. The employee made an election that is effective Dec. 16, 2012;
for is agency, the pay date for that pay period is Jan. 4, 2013, which is the
first pay date in 2013. In this example, the employee's biweekly contribution
should not exceed $674 each pay period. If the employee was paid monthly, the
contribution could not exceed $1,458 per month to ensure maximum Agency Matching
Your estimate. For Item 1, enter the IRC elective deferral limit for the year
in which your new election will be effective.
For Item 2, log into My Account on the TSP website (http://www.tsp.gov) to find the total amount of
your year-to-date elective deferrals. This is the total amount of your employee
contributions minus any traditional contributions from tax-exempt pay.
For Item 4, count the number of pay dates remaining in the calendar year,
beginning with the pay date following the end of the first full pay period after
you make your election.
* Employees can confirm the number of salary periods with their agencies or services.
** In this example, the last contribution of the year will be decreased to $650 by the employee’s agency so that the employee will not exceed the elective deferral limit for the year.
Once an employee decides how much they want to contribute to the TSP each pay
date, they will do so either by using their agency's electronic enrollment
process or by filling out and submitting form TSP-1.
Another decision facing TSP participants for 2013 is which TSP account they
want to contribute to during 2013, namely:
- The traditional TSP using before taxed gross salary;
- The Roth TSP using after-taxed salary; or
- Combination of (1) and (2), subject to the elective deferral limit of
$17,500. FERS employees should note that no matter which TSP account --
traditional or Roth -- they contribute to, all agency automatic and agency
matching contributions will always go into an employee's traditional TSP
Among the factors that should be considered in determining which TSP account
should be used are:
- The employee's current marginal tax bracket;
- The number of years until an employee retires;
- The number of years an employee will spend in retirement;
- Their expected rate of return; and
- The employee's estimated retirement marginal tax bracket.
The TSP has a "Contribution Comparison Calculator" on its website that
provides a side-by-side comparison of traditional and Roth contributions. This
will help an employee assess whether the Roth TSP might be right for the
The calculator may be found at www.tsp.gov/planningtools/contributioncompanrison.shtml.
Employees should note that the calculated results are based on the limited
information presented. Employees are therefore encouraged to consult a qualified
tax or financial advisor to further assess their individual situations.
Once an employee decides which TSP account(s) to contribute to each pay date,
they will do so either by using their agency's electronic enrollment process or
by filling out and submitting form TSP-1.
About the Author
Edward A. Zurndorfer is a Certified Financial Planner, Chartered Financial
Consultant, Chartered Life Underwriter, Registered Health Underwriter,
Registered Employee Benefits Consultant and Enrolled Agent in Silver Spring, MD
-- and the owner of EZ Accounting and Financial Services, an accounting,
tax preparation and financial planning firm also located in Silver Spring,
MD. Zurndorfer is also is an instructor at federal employee
retirement seminars throughout the country and writes numerous columns and books
on federal employee benefits.