The Federal Retirement Thrift Investment Board (FRTIB) — the administrative agency that oversees the Thrift Savings Plan (TSP) — wants to make it easier for participants to make catch-up contributions. The board made a proposal to change regulations in the Federal Register on Jan., 23, 2020.
What is a TSP Catch-Up Contribution?
A catch-up contribution is a contribution that exceeds a statutory limit on the amount of contributions a participant can normally make to the TSP in each calendar year. Congress’s reason for permitting these extra contributions was to allow participants to “catch up” for years when they were not employed or were otherwise unable to contribute toward their retirement.
Normally, a TSP participant’s contributions cannot exceed the statutory limits set forth in Internal Revenue Code (IRC) section 402(g) (limiting the amount of traditional and Roth contributions to $19,500 for calendar year 2020) and IRC section 415(c) (limiting the total amount of traditional, Roth, tax-exempt, matching, and automatic 1% contributions to the lesser of 100% of the participant’s compensation or $57,000 for calendar year 2020).
Participants who are age 50 or older are allowed to make catch-up contributions beyond these statutory limits—up to the dollar amount in IRC section 414(v), which is $6,500 for calendar year 2020.
Currently, participants who wish to make catch-up contributions are required to submit an election form called “TSP-1-C/TSP-U-1-C, Catch-up Contribution Election” (or electronic equivalent) to their employing agency. The catch-up contribution election form is separate, and in addition to, any other contribution election that a participant may already have on file.
Upon receipt of a catch-up contribution election form, the participant’s employing agency begins submitting catch-up contributions to the TSP on the participant’s behalf, using special payroll records designed specifically for catch-up contributions. The payroll records that employing agencies use for submitting catch-up contributions are separate, and in addition to, the payroll records that employing agencies use for submitting other types of contributions.
Proposed Change to TSP Catch-Up Contributions
The FRTIB proposes to simplify the catch-up contribution process, by no longer requiring participants to submit separate catch-up contribution election forms in addition to their other contribution election forms. Instead, the TSP will simply continue to accept contributions based on the participant’s contribution election that is already on file, until his/her contributions reach the combined limits on catch-up contributions and other types of contributions. Employing agency payroll offices will no longer submit catch-up contributions to the TSP on special payroll records designed specifically for catch-up contributions. Instead, payroll offices will submit catch-up contributions using the same payroll records that they use to submit other types of contributions.
The TSP recordkeeping system will automatically determine, based on the participant’s date of birth, whether the participant is eligible to make catch-up contributions. When an employing agency payroll office submits contributions in excess of the 402(g) limit or the 415(c) limit on behalf of a catch-up eligible participant, the TSP recordkeeping system will automatically treat the excess contributions as catch-up contributions, without requiring any additional paperwork from the participant or any special payroll records from the payroll office.
The proposed effective date for this change is Jan. 1, 2021.