Policy on Excess Contributions Explained

Meanwhile, the TSP has said that it will disburse back to participants during this month “excess deferrals” they made into their accounts in 2005 and for which they requested a refund. Excess deferrals are money that put into the TSP through regular deductions above the IRS dollar cap, which last year was $14,000, and, if applicable, the $4,000 limit on “catch-up” contributions allowed for those age 50 or higher last year. Those receiving the refunds must report the excess amount on their 2005 taxes as income earned last year; however, any earnings accrued on the excess will be reportable in the year for which the earnings are paid out, which would be 2006. The deadline for requesting refunds has passed; those who missed the deadline must report the excess deferral as income earned for 2005 and pay taxes on this amount. The amount will remain in their TSP accounts and will be considered taxable income earned in the year it is withdrawn from the TSP.