The month of December is an important time for Thrift Savings Plan (TSP) participants. During December, federal employees have their last opportunity to contribute to the TSP for the current calendar year.
In early to mid-December, employees are encouraged to decide how much they plan to contribute to the TSP starting with their first pay date in January of the following calendar year.
SEE ALSO: New TSP Contribution Limits
The TSP recently announced the TSP contribution limits for 2024. Starting January 1, 2024, all employees can contribute a maximum of $23,000 to the TSP.
Those employees who will be over age 49 as of December 31, 2024 (employees born before January 1, 1975) can contribute an additional $7,500 in catch-up contributions, for a total of $30,500.
The $23,000 contribution limit is an increase of $500 from the $22,500 during 2023 while the catch-up contribution limit of $7,500 during 2024 is the same as it is during 2023.
Two other items should be noted with respect to employee TSP contribution during 2023 and 2024.
First, both the regular contribution limit for 2023 ($22,500) and 2024 ($23,000), and the contribution limit for employees over age 49 (as of December 31) which include catch-up contributions – $30,000 during 2023 and $30,500 during 2024 – do NOT include the agency automatic 1 percent of gross pay contribution and maximum 4 percent matching contributions that FERS-covered employees receive.
Second, the leave year for 2023 at most federal agencies ends on January 13, 2024, the end of pay period 27 for leave year 2023. However, since employee TSP contributions made via payroll deduction are based on the calendar year ending December 31, an employee’s final opportunity to contribute to the TSP for 2023 will be the employee’s final paydate in December 2023.
Note that pay period 26 at most federal agencies starts December 17,2023 and ends December 30, 2023. Sometime during pay period 26 will be the employee’s 26th and final pay date for calendar year 2023.
Considerations for 2023 TSP Contributions
As mentioned above, an employee’s final pay date during 2023 (occurring sometime in late December 2023) will be the employee’s last opportunity to contribute to the TSP for calendar year 2023.
Those employees who reach their TSP contribution limit during pay period 26 of leave year 2023 will be able to contribute to the TSP for pay periods 26 and 27 of leave year 2023. This is because employees will get paid – their payroll checks will get directly deposited into their bank accounts – sometime in early to middle January 2024.
This is important for employees who will be retiring at the end of pay period 26 (December 30, 2023). Once retired, they can no longer contribute to the TSP. But they can contribute to the TSP for calendar year 2024 via their last paycheck for pay period 26 of leave year 2023.
The following example illustrates:
Example 1.
David, age 62, will be retiring on December 30,2023 after 30 years of federal service under FERS. His last pay period is pay period 26 of leave year 2023. During that final pay period, his gross salary will be $6,000. After subtracting mandatory payroll deductions including his FERS retirement contribution, FICA tax, Medicare Part A hospital insurance tax, and health and life insurance premiums, David’s net paycheck is $5,373.
He can elect to contribute the entire $5,373 to his traditional and/or Roth TSP account. His agency will contribute an automatic 1 percent of his gross salary of $60, and a 4 percent matching contribution of $240, for a total of $300. David can do this because his paycheck for pay period 26 of leave year 2023 will be dated in early January 2024.
TSP Considerations for Federal Employees Who Will Become Age 73 During 2024 and Older Employees
Those employees who will become age 73 anytime during 2024 (they were born between January 1 and December 31, 1951) and who plan to continue working in federal service throughout 2024, will not be required to take their first TSP required minimum distribution (RMD) before April 1, 2025.
This is because they plan to continue in federal service throughout 2024. Note that under SECURE Act 2.0, the required beginning date (RBD) was raised to age 73, effective January 1,2024 for individuals born between January 1,1951 and December 31, 1959.
SEE ALSO: New TSP Required Minimum Distribution Rules
In general, any federal employee who has reached his RBD is not required to take a TSP RMD if the employee continues to work in federal service.
However, an RMD for the year 2024 must be taken if an employee has reached his or her RBD and owns a traditional IRA and/or a qualified retirement plan such as a 401(k), 403(b), or a SEP IRA that the employee previously participated in.
This is true even if the employee remains in federal service during 2024. A way to avoid these 2024 RMDs is for the employee to transfer their entire traditional IRA and/or qualified retirement plan account into their traditional TSP. They can do so by going online to their TSP account, filling out and submitting Form TSP-60 (Request for a Transfer into the TSP). They should specifically request a direct rollover from the traditional IRA and/or qualified retirement plan, providing all of the requested information.
Federal employees who plan to request these direct rollovers are advised to do so no later than December 18, 2023. This is because in general an RMD is calculated based on the traditional IRA owner’s or qualified retirement plan participant’s account balance as of December 31 of the previous year.
For any employee who will be age 73 or older during 2024, and who wants to avoid traditional IRA and/or qualified retirement RMDs during 2024, should make sure their traditional IRA and/or qualified retirement plan account balances are $0 as of December 31, 2023.
Form TSP-60 should be completed and submitted (online) to the TSP no later than December 18, 2023 in order to give sufficient time for the traditional IRA custodian, qualified retirement plan administrator and the TSP to complete the direct rollover by December 31, 2023.
Considerations for 2024 TSP Contributions
As previously discussed, for 2024 all employees can contribute, via payroll deduction, a maximum of $23,000 to their TSP accounts – traditional TSP, Roth TSP, or a combination of both.
Those employees who will be over age 49 as of December 31,2024 can contribute additionally a maximum of $7,500 of catch-up contributions for a total of $30,500 to the traditional TSP, Roth TSP, or a combination of both accounts.
Those federal employees who plan to retire from federal service anytime during 2024 are allowed to contribute the maximum possible ($23,000 or $30,500) even though they may be retiring before December 31, 2024.
Employees who may be retiring during 2024 as a result of an early retirement opportunity, a Voluntary Early Retirement Authority -VERA, or a Voluntary Separation Incentive Payment – VSIP, can also contribute the maximum possible to the TSP during 2024. This is true even if they are retiring before the end of calendar year 2024.
Employees can elect to contribute to the traditional TSP, to the Roth TSP or to both TSP accounts. But their total contributions for 2024 cannot exceed $23,000 for employees younger than age 50 through 2024, or $30,500 as of December 31, 2024. For a FERS-covered employee receiving the maximum 4 percent TSP matching contributions from their agency during 2024, the employee must contribute at least 5 percent of their salary each pay date during 2024, starting with the first pay date in January 2024 and ending with the last pay date in December 2024.
It makes no difference which TSP account, traditional or Roth, the employee contributes to in reaching the minimum 5 percent per pay date contribution. A FERS-covered employee’s agency will always contribute the automatic 1 percent and the matching contribution to the employee’s traditional TSP account, and not to the employee’s Roth TSP account.
The following worksheet will assist a FERS-covered employee to achieve the goal of maximizing their contributions during 2024 and receive the maximum agency match of four percent.
The following two examples illustrate:
Example 2. Rhonda is a federal employee, age 47. Rhonda wants to maximize her 2024 TSP contributions. Rhonda is a FERS-covered employee and also wants to receive the maximum 4 percent TSP matching contribution from her agency. Rhonda uses the above worksheet to determine what her bi-weekly contribution should be, starting with her first pay date in January 2024.
Example 3. Jerry, age 62, will be retiring from federal service as a FERS-covered employee on June 30, 2024. He will be retiring shortly before the end of pay period 14. Before he retires, Jerry intends to contribute the maximum possible to the TSP and receive the maximum 4 percent matching TSP contribution from his agency. Jerry uses the worksheet to determine how much he should have deducted from his salary during 2024, starting with Jerry’s first pay date in January 2024.
Note that both Rhonda and Jerry have to plan with their agency’s Electronic Payment processer (for example, EPP, MyPay) in mid-December 2023 to make sure that their TSP contribution elections will take effect on their first pay date in January 2024.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER®, Chartered Life Underwriter, Chartered Financial Consultant, Registered Health Underwriter and Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019