A bill introduced in the House regarding investment of unused annual leave in the TSP is not as broad as many envisioned the plan to be, but it could work to the benefit of many people as they retire, should it be enacted into law.
The measure would allow employees to invest the value of unused annual leave in their TSP accounts when they are available for a cash payment of that leave. However, under the bill current employees would not be eligible to make ongoing investments or lump-sum contributions of the value of unused annual leave, as many had hoped the measure would provide.
In addition, investment of unused annual leave value at separation, when combined with regular payroll withholding for the year, would have to fit under the same annual maximums applying now only to payroll withholding: $16,500 this year, plus another $5,500 for those age 50 or older during the year.
However, the benefit could be valuable to many employees at retirement. A particular consideration would apply to those retiring around the end of the year. As long as the individual was on the payroll at any time in a calendar year, the payment could be invested in the account for that year. Thus, for example, someone retiring January 3 of a year could put the value of the annual leave lump-sum payment in his or her TSP account (subject to the dollar limits for that year) for that year, shielding the money from taxation.
In addition, the policy would apply to those separating for military service or for other reasons, such as to leave government for a private sector job.