FERS employees have the option to contribute to the Thrift Savings Plan (TSP) while working. The TSP is essentially a government – sponsored 401(k) program that allows federal workers the chance to accumulate retirement savings. FERS workers get the added benefit of a five percent match to their TSPs if they contribute at least five percent of their own salaries. The TSP is a vital part of a federal retiree’s retirement plan and one that should not be overlooked; however, there are limits to how much an employee can contribute each year. The 2021 TSP contribution limits are listed below; it’s vital to be familiar with these rules and regulations to be able to take full advantage of the options available as a federal employee.
TSP Contribution Limits for 2021
Federal employees under the age of fifty can contribute up to $19,500 to TSP in 2021. Note that this limit is the employee’s contribution and not a combination of the employee’s and employer’s contributions to TSP. Federal employees ages fifty or older can contribute an additional $6,500 to TSP. These catch-up contributions bring the total contribution limit for employees ages fifty or older up to $26,000.
Traditional vs. Roth TSP
Even though federal employees have the option to contribute to both the traditional TSP and Roth TSP, the limits listed above are the maximum amounts employees can add to their TSPs in 2021, whether traditional, Roth, or some combination of the two.
The labels Traditional and Roth refer to the type of “tax wrapper” the money is in. Money in the traditional TSP is tax deferred. Tax deferred or “tax me later” simply means one will pay no income tax on contributions to TSP while working, but will pay tax when the funds are withdrawn from TSP.
The Roth TSP is a “tax me now” account. This means that individuals are taxed when making contributions to Roth. Although contributions to Roth are taxed upfront, the money will grow in the account tax free and funds are typically completely tax free when withdrawn from the Roth. We say typically because there are certain requirements that have to be met to access the money tax free. See our video on TSP withdrawals in retirement for more on this topic.
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.