With the end of the year approaching, time is running short to elect to make “catch-up contribution” investments into the TSP and for FERS employees investing at high levels to cut back if needed to avoid hitting the annual investment limit too soon.
Catch-ups are allowed for federal employees who are age 50 or above (or will be before the end of the year) and who have hit the limit ($19,000 this year) or are on an investing pace to do so by the end of the year.
The maximum allowable catch-up is $6,000 this year. The investments must be made from payroll withholding, so to take the most advantage of the benefit with only a few pay periods left in the year, investors would have to order a large biweekly withholding, assuming they could live on the reduced income for that period.
The TSP recently said that it starting in 2021 it will begin a policy of “spillover” in which participants will not have to elect to make catch-up contributions but instead will keep contributing through their normal payroll deductions up to the catch-up limit. However, until then the requirement to make a catch-up election applies.
Meanwhile, to get the maximum government contributions, FERS participants need to structure their investments so that they are putting in at least 5 percent of salary in each pay period of the year. If they hit the annual limit (the same $19,000) before that, they can no longer invest until the next year, and agency matching contributions worth up to 4 percent of salary cut off too, and can’t be recouped (the automatic 1 percent of salary agency contributions would continue, though).
If there is any question, they should check with their payroll offices to see how many TSP investment dates—which are not necessarily the same as pay distribution dates—are left in the year, and adjust accordingly. That is not an issue for CSRS investors, who get no government contributions.
Note: For both purposes, the dollar limit consists of both traditional and Roth style investments, for those who make both; it does not include employer contributions for FERS employees or any transfers into the TSP from other retirement savings plans.
Read more on TSP Catch Up Contributions at ask.FEDweek.com