Raise Provides Good Reason to Reassess TSP Investments

Getting a raise–whether a general one as took effect for most employees effective January 7 or on an individual basis, such as on a promotion or advancing within a grade–provides a good opportunity to reassess TSP investments.

For employees making investments based on a percentage of salary, investment amounts increase automatically when a raise takes effect. Those making investments based on a dollar amount per pay period must file a new investment election if they want to boost their investments.

Employees under FERS further should note that to capture the maximum government contributions, they need to pace their investments so that they are able to invest at least 5 percent of salary each pay period throughout the year. If they hit the annual limit ($18,500 in 2018) before that, their regular investments will shut off, and so will agency matching contributions (although the automatic 1 percent of salary contribution would continue). Once lost, matching contributions can’t be recouped. Employees investing on a percentage of salary basis might cross that threshold too soon in 2018, due to the impact of a raise.

FERS employees also will want to check the number of pay distribution dates–not the ending dates of biweekly pay periods–for them in 2018 to best structure their investments. Typically it is 26, but there are situations where it can be one more or one fewer. (The actual investment in the TSP often is made later than the individual’s pay distribution date but that is not an issue for these purposes.)

There is no such consideration for CSRS employees, who get no government contributions. Many of them “front-load” by investing at high rates early in the year in order to get the money into their accounts as soon as possible.