If you’re under the age of 50 and/or won’t be turning 50 before the year is out, you can ignore this article. That’s because the article is about the Thrift Savings Plan’s switch to the “Spillover” method for catch-up contributions to the TSP.
Ever since the TSP began allowing catch-up contributions many years ago, participants who qualify to make said contributions have had to make a separate election for catch up contributions. Catch up contributions are $6,500 a year and are over and above the annual elective deferral amount of $19,500. A participant who is 50 or over (including those who turn 50 during the year) is allowed to contribute a total of $26,000 to the TSP. Catch up contributions were created so that those who did not save as much as they should in the early years of their career can contribute more and therefore, “catch up” to where they would have been if they had been saving all they could in the TSP from the beginning.
Beginning with the first pay period of 2021, participants who are eligible to make catch up contributions simply need to make one allocation, not two. For example, if you wanted to (and could afford to) contribute the full elective deferral amount and make the full catch up contribution, you would select a contribution of $1,000 in a 26 pay period year or $962 in a 27 pay period year. This brings you to the amount of $26,000 in the final pay period of the year, making certain that you would receive the entire government match.
How does spillover affect the government matching contributions? Here’s what the Thrift Board said about this in TSP Bulletin 19-5, Introduction of the Spillover Method for Catch-Up Contributions to the Thrift Savings Plan, “…as long as participants are contributing at least 5% of their basic pay, the match they’re entitled to will not change, regardless of how much they increase their contributions.”
We will be seeing new TSP forms and revisions to TSP publications because of the change to spillover contributions. Keep an eye peeled for emails from your payroll provider and/or your human resources office with instructions as to what you will need to do.
On October 9, the Thrift Board issued some more guidance on spillover contributions in TSP Bulletin 20-1, Spillover Method for Catch-Up Contributions to the Thrift Savings Plan – UPDATE.” Most of the bulletin is information for payroll and personnel offices, but here’s how the bulletin says the process will work.
“The TSP system will determine if the participant is eligible to make additional contributions toward the catch-up limit based on the participant’s date of birth. A participant is eligible to make catch-up contributions in any year in which the participant is 50 or older, including the year in which the participant is 49 but will turn age 50 by the end of the calendar year.
“If the participant is eligible to make catch-up contributions, anything beyond the elective deferral limit will automatically start counting towards the catch-up contribution limit. These additional contributions will ‘spill-over’ until the participant meets the catch-up limit for those 50 or older. Contributions spilling over toward the catch-up limit will be matched, but only up to the 5% of salary to which participants are already entitled.”
This change by the Thrift Board makes the TSP easier to navigate and understand. The TSP has come a long way since it was introduced back in 1987.