Agency contributions into the accounts of FERS employees do not count against the limits, nor do rollovers into a TSP account. Image: tete_escape/Shutterstock.com
By: FEDweek StaffThe IRS has released several numbers important for planning 2025 investment rates in the TSP, including raising the standard investment maximum from the current $23,000 to $23,500.
That is the “elective deferral limit” applying in the TSP along with other similar tax-favored retirement savings plans, and applies to the combination of traditional pre-tax investing and Roth after-tax investing, for those making both types.
A separate standard “catch-up contribution” limit for investors who are—or who will be by the end of the year—age 50 or older during a calendar year will remain $7,500; that also applies to a combination of traditional and Roth investing, for those making both types.
Through this year, the same limit applied to all eligible persons regardless of age beyond 49, but effective in 2025, those age 60, 61, 62, or 63 in a given year have a higher limit of 150 percent of the standard limit, making the new, higher, limit $11,250 for 2025.
Agency contributions into the accounts of FERS employees do not count against the limits, nor do rollovers into a TSP account from retirement savings plans of prior employers.
The elective deferral limit is the one of most interest to investors, since catch-up investing applies only to those age 50 and older. FERS investors should structure their investments to make sure they are investing at least 5 percent per pay period throughout a year in order to capture the maximum government contribution (4 percent in matching contributions on top of the automatic 1 percent of salary contribution).
Hitting that limit before the last pay period would result in the matching contributions shutting off, an issue the TSP recently raised before its governing board, saying that FERS investors who do not structure their investments properly lose hundreds of dollars a year on average in lost matching contributions.
While the catch-up limit provides a cushion for those age 50 and older—and an even larger one starting next year for those ages 60-64 in a given year—it is possible to hit even that limit too soon.
TSP investors can change their investment amounts—and the funds they invest in—at any time but the start of a new year is a common time to do so. Biweekly investments can be made either by dollar amount or by percentage of salary; while the first type continues unless changed, the latter increases automatically with pay increases.
That could be a factor for those who are investing at a rate putting them close to the maximum applying to them, with an average 2 percent raise on track to be paid in January. Exact figures aren’t set to be released until near year’s end, but the raise likely will vary by locality from several tenths of a percentage point above 2 percent to several tenths below.
The IRS announcement meanwhile keeps the standard contribution toward an IRA at $7,000 and the IRA catch-up contribution amount at $1,000 for 2025. It also sets the amounts at which deductibility of IRAs and eligibility for Roth IRAs phase out and then end, and addresses various other, more specialized retirement savings policies.
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See also,
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The Best Ages for Federal Employees to Retire
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