FERS Employees Could Hit TSP Investment Limit Soon, Miss Matching Contributions
This point of the year is a good time for FERS employees who invest in the TSP at high rates to make sure they won’t lose government contributions to their accounts due to hitting the annual investment dollar limit too early.
The standard “elective deferral” limit this year is $22,500 (a combined limit for both traditional pre-tax TSP investing and after-tax Roth investing, for those making both types). For those age 50 or older—or who will turn 50 by year’s end—an additional $7,500 in “catch-up contributions” is allowed.
FERS investors should take care to structure their investments so that they can continue investing at least 5 percent of salary, the amount that produces the maximum government contribution, through every pay period of the year. Some employees invest at high rates early in the year in order to get money in the TSP sooner and take advantage of potential tax-advantaged growth for longer periods—that is, “front-loading” their investments.
Especially those FERS employees who have been doing so might want to examine their situation around now.
If FERS investors hit the dollar cap before the last pay period of the year, their own investments will shut off until next year and so will government matching contributions worth up to 4 percent of salary (although the automatic 1 percent of salary government contribution would continue). Once lost, matching contributions can’t be recouped. To prevent that from happening, investors might need to make a new investment allocation.
They might wish to discuss the situation with their payroll offices, to determine how many pay distribution dates (not pay period ending dates, which are different) will remain in the year by the time they make a change, in order to set up their TSP withholding to their best benefit.
There is no similar consideration for CSRS investors, who get no government contributions.