"Catch-up" contributions are supplemental tax deductible

contributions that federal employees age 50 and older (or turning age 50 during the

calendar year) can make to the Thrift Savings Plan (TSP).

"Catch-up" contributions are an addition to the maximum

amount that employees can contribute through regular contributions. During 2010,

all federal employees (CSRS and FERS) may contribute a maximum $16,500 in

"regular" contributions and $5,500 in "catch-up" contributions.

In order to make "catch-up" contributions, an

employee must be:

• age 50 or older during the calendar year in which the

catch-up contributions are made. This is the case no matter what time of the

year the employee becomes age 50. For calendar year 2010, this means that

employees born on or before Dec. 31, 1960, are eligible to make catch-up

contributions throughout 2010;

• currently employed and in pay status; and

• making regular contributions to a civilian or uniformed

services TSP account or both, and/or equivalent employer plan such as a 401(k),

403(b) or 408 plan, that will equal the maximum allowed by the IRS (the

"elective deferral limit") which is $16,500 for 2010.

"Catch-up" contributions are supplemental and do not

count against the IRS' elective deferral limit of $16,500 during 2010. This

means that the combination of regular and "catch-up" contributions cannot exceed

$22,000, which includes the $16,500 elective deferral limit plus the $5,500

"catch-up" contribution limit.

Those employees 50 and older who have made a hardship

withdrawal from the TSP are ineligible to make "catch-up" contributions within

six months of their making a hardship withdrawal.

"Catch-up" contributions can be made only via a deduction

from an employee's gross pay. Bonuses or special/incentive pay (applicable to

members of the uniformed services) cannot be used for "catch-up" contributions.

"Catch-up" contributions apply to the year in which the

employee made the contribution -- even if the contributions are posted to the

account in the following year. This means that if a retiring employee's last pay

date is in December and he or she has reached the maximum contribution limit for

the year ending Dec. 31, then no "catch-up" contribution may be made from the

employee's last paycheck. This is true even if the check is dated sometime in

January.

Consider the following example.

Ellen intends to retire from federal service on Dec.

31, 2010 at which time she will be 57 years old. During 2010, Ellen intends to

contribute the maximum $16,500 regular contributions and $5,500 "catch-up"

contribution to her TSP account. Ellen will not be able to elect to any of her

final paycheck contributed to the TSP. This is because even though she is

retiring Dec. 31, 2010 and her final paycheck will be dated in January 2011,

Ellen would have reached the maximum $22,000 TSP contribution limit by the time

she retires on December 31.

"Catch-up" contributions may only be made through payroll

deductions and are made prior to federal and in most cases, state tax

deductions. Employees must submit to their agency or service branch a Catch-Up

Contribution Election Form TSP-1-C, or Form U-1-C for members of the uniformed

services. The employee or uniform service member must include the dollar amount

- not a percentage of gross pay - to be deducted from their gross pay. The

employee or service member must also certify that the employee or service member

expects to contribute the maximum amount of regular contributions for the

calendar year. If an agency or service branch uses an electronic version of the

form, such as Employee Express, PostalEase, EBIS or MyPay, then the employee may

be required to submit his or her election electronically.

A "catch-up" contribution election can be made anytime

during the year. An election becomes effective the first full pay period after

the employee's agency receives the employee's election request. The election

will only be valid through the end of the calendar year in which it is made.

This means that employees will have to submit a new Catch-Up Contribution

Election form each year.

When the TSP receives an employee's catch-up

contributions, it will post the contributions upon receipt and allocate it to

the employee's account according to the employee's current contribution

allocation. An employee cannot make a separate contribution election for

"catch-up" contributions. Once the "catch-up" contributions are posted to an

employee's TSP account, they become part of the employee's account balance and

are subject to the same rules as other tax-deductible and tax-deferred employee

contributions. The employee is immediately vested in these contributions.

An interfund transfer has the same effect on "catch-up"

contributions as on the rest of the money in the employee's account. The

contributions are available for loans and withdrawals and spouses' rights also

apply with respect to withdrawals.

Employees can start, change or stop making "catch-up"

contributions at any time during the year. To start, request a change, or to

stop making "catch-up" contributions, employees have to submit Form TSP-1-C or

make their request via their agencies' electronic enrollment process. Once

"catch-up" contributions are stopped, they will not resume automatically. The

employee must complete and submit another Form TSP-1-C in order to restart the

contribution process. This can also be done electronically.

"Catch-up" contributions are reported like regular TSP

contributions to the IRS on an employee's Form W-2, Wages and Tax

Statement.

About the Author

Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in

Silver Spring, MD. He is a seminar speaker at federal employee retirement

seminars throughout the country for the National Institute of Transition

Planning, Inc. , and an author of numerous publications on federal employee

benefits.