2021 looks like a year where we can get by with making few, if any, changes to our Thrift Savings Plan accounts. The elective deferral amount remains at $19,500, the same as it is in 2020. The “catch-up” limit remains at $6,000, just like today.
What could possibly go wrong?
Even during the calmest periods, there’s something that can go wrong. One way you can avoid things going askew is to pay attention to what is going on. I’m sure that you remember your 2nd grade teacher; the one who kept telling you to PAY ATTENTION! That was good advice then and remains good advice today. We still need to pay attention to our TSP contributions for at least two reasons.
Reason 1. For those who are 50 or older (including those who turn 50 during 2021), the TSP is switching to “spillover” contributions. No longer do those of us who want to (and can afford to) make catch-up contributions have to make separate contribution elections; we can make one simple election that will cover both the elective deferral amount and the catch-up amount. Because those two amounts ($19,500 and $6,500) add up to $26,000, that amount (the $26K) is what should be allotted in contributions. But don’t forget matching contributions! In order to receive the government match, you must contribute each and every pay period. 2021 has 26 pay periods, so, in order to get the full match, you will contribute $1,000 per pay period to the TSP if you are 50 or older. That way, you’ll get the match each and every pay period of the year.
Reason 2. The afore mentioned matching contributions apply to those who haven’t reached the age of 50 as well. If you are not old enough to make matching contributions, you can still contribute $19,500 to the TSP in 2021. You do that by contributing $750 per pay period. That’ll have you maxxing out in pay period 26, scoring the government match in every single pay period.
For both reasons 1 and 2, you need to focus on the government match. Don’t contribute a percentage of your salary to the Thrift Plan. Instead, divide the amount you are allowed to contribute by the number of pay periods in the year so that you can maximize your match. Believe it or not, there are still employees who max out before the end of the year and leave matching contributions on the table because they contribute a percentage of their salary, rather than a specific dollar amount, to the TSP. Now, most of those who contribute a percentage of salary and leave money on the table are not readers of FEDweek’s TSP Investment Report. Do your co-workers a favor; share this edition of the report with them. While you’re at it, encourage them to subscribe to the report.
But there is one big exception to the above reasons to contribute a fixed dollar amount each pay period; let’s look at it now.
The big exception. If you can’t afford to contribute the full amount to the TSP, then, a percentage amount is fine. This is especially true for those in the early stages of their career who are looking to get the government match but can’t put in more due to other responsibilities (education debt, child rearing expenses, etc.). Electing a 5% contribution will get you on the road to where you are going. As your career continues, you will be able to increase your contributions. When you get to the point when you can fully fund the TSP, then you’ll switch to a fixed dollar amount for your contributions.
Never forget to pay attention to the circumstances around you. As circumstances change, your decisions and strategy should change also.
Market Exuberance Hits a Peak
There are various threads on social media where young investors are plowing stimulus checks into call options or shares of highly-valued stocks. With little else to do during lockdowns, trading volume among retail investors is at record highs over the past year.