TSP Contributions: Important Considerations
What are the Thrift Savings Plan (TSP) contribution limits (elective deferrals)?
Elective deferrals are tax-deferred amounts that an employee chooses to contribute to
a plan rather than receive as pay. Because such contributions are tax-deferred,
they are not included in an employee's taxable gross income for the year in which they
are contributed. The employer makes the contributions on your behalf under a
qualified cash or deferred arrangement (as defined in section 401(k) of the
Internal Revenue Code (Tax Code)). For TSP participants, employee contributions are considered to be elective
deferrals. The annual limit for elective deferrals will remain at $16,500 in 2010. Also,
the limit for catch-up contributions will remain at $5,500 in 2010. Elective deferrals do not include agency automatic (1%) or agency
matching contributions because those contributions are not considered part of
a federal employee's pay.
What happens to employee contributions when the annual limit is
reached?
When the annual limit is reached, your employee contributions 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 automatically resume
the first pay date in the following year.
What happens to 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 upon 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.
Does it make a difference if the employee reaches 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 five 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 contribution and still
receive the maximum agency matching contribution each year?
To receive the maximum agency matching contribution, you must contribute
at least five percent of the basic pay you earn each pay period during the year.
(The first five percent of your basic pay each pay period is matched --
dollar-for-dollar on the first three percent and 50 cents on the dollar for the
next two 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 at http://www.tsp.gov/calc/contributions/index.html .
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%) contributions whether or not you make employee
contributions.
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 IRS 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
IRS elective deferral limit?
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. They do not count against the IRS elective deferral limit.
However, each year, the IRS limits the total amount of regular and catch-up
contributions an employee can make.
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