2021 brought at least one significant change to the way TSP catch-up contributions are designated on an employee’s paystub. In past years, employees ages 50 and older would make elections designating their regular TSP contributions and a separate election for catch-up contributions. In 2021, the old way was replaced with TSP’s new spillover method, in hopes of creating a simpler and streamlined process for TSP participants.
Catch-up Contributions
Catch-up contributions are simply additional contributions to TSP that are allowed for employees ages 50 or older who are nearing federal retirement. Catch-up contributions are designed to give employees additional opportunities to build up a nest egg for their years after federal employment. The TSP annual contribution limit for federal employees and the catch-up contribution limit for 2021 are listed below.
Spillover Method
Although the amount that can be contributed to the TSP for 2021 has not changed, the method for designating catch-up contributions has been altered. Federal employees in 2021 will not be required to make two separate elections for regular contributions and catch-up contributions, but will simply make one election. Once the annual contribution limit of $19,500 is reached, any additional allocations will be automatically counted as catch-up contributions for those 50 and older.
Spread Out Your Contributions
The employer match is contributed every pay period, not annually. Be sure to spread TSP contributions evenly throughout the year. Some people make all of their contributions early in the year, giving themselves extra cash flow for Christmas. Others try to put the money in at the beginning of the year to maximize potential investment returns, and others simply procrastinate by not making their contributions until the end of the year. This could cost workers part of the employer match for pay periods in which they did not contribute the required five percent of their salaries. In essence, this is failing to collect free money.
