For any pay period where you are not contributing for any reason, you will get the 1% government contribution and that is al. Image: RODWORKS/Shutterstock.com
By: John GrobeAre you a highly compensated FERS employee who contributes the maximum to the TSP each year? Don’t risk losing any of the government’s matching contributions by maxing out your TSP before the end of the year.
The government can contribute up to 5% of your salary to the TSP each pay period, as follows:
- 1% agency automatic contribution paid whether or not you are contributing to the TSP.
- A dollar-for-dollar match on the first 3% of your salary that you contribute each pay period.
- A fifty-cent on the dollar match for the next 2% of your salary that you contribute each pay period.
For any pay period where you are not contributing for any reason, you will get the 1% government contribution and that is all. Let’s look at a highly compensated FERS employee who is not paying attention and reaches the TSP maximum ($23,500 in 2025) before the year ends.
Sally has a salary of $150,000 per year and is contributing 20% of her salary to the TSP. 20% of $150,000 a year comes out to $1,153 per pay period. At a 20% contribution rate, she will reach the maximum TSP contribution six pay dates before the end of the year. For the final six pay periods of the year she will not be contributing to the TSP. For these six pay periods, the government will contribute only 1% of her salary. Sally will have missed out on 4% of the government match for six pay dates.
Now let’s say that Sally was paying attention.
At the beginning of the year, Sally divides her salary by the number of pay dates (not “pay periods”, but “pay dates”) in the year. Most years will have 26 pay dates, though there is an occasional year with 27 pay days.
In a 26 pay day year, Sally will elect to have $904 taken from her pay each pay period. In a 27 pay period year, she will choose the amount of $871. This ensures she receives the full 5% government contribution for every pay period.
If Sally just began paying attention after reading this article, she can adjust her TSP contributions by dividing the number of pay dates remaining in the year by the amount she needs to contribute to hit the maximum contribution at the end of the year.
What if you are not currently highly compensated like Sally is? The best TSP contribution strategy for you is to stick with a percentage of your salary. That way, when (if) your salary goes up, the amount you are contributing to the TSP goes up correspondingly.
John Grobe is a retired federal employee and retired retirement educator with over 30 years of experience in helping federal employees understand their retirement.
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