Changes Coming to the TSP Catch-Up Contribution Process

Federal Employee Articles

Changes Coming to the TSP Catch-Up Contribution Process

Posted by Benchmark Financial Group, LLC
1 month ago | March 2, 2020

If you currently participate in the Thrift Savings Plan “catch up” contribution program, take note of this: The process for making these contributions will change beginning in 2021.

These rules concern catch-up contributions only, which are available to workers aged 50 and older. Essentially, these contributions allow you to stash more money in your TSP while enjoying the same tax benefits of regular contributions. It can be a great way for those nearing retirement to beef up their savings.

Currently, you are required to submit a form called TSP-1-C or TSP-U-1-C to your employing agency if you wish to make catch-up contributions. The employing agency then submits catch-up contributions to your TSP on your behalf, via payroll deductions. These payroll records are separate from those utilized for other types of contributions.

Under this system, participants were required to certify that they would meet the IRC 402 elective deferral limit, but this requirement often seemed unclear to employees and/or agencies. And, those who made catch-up contributions without meeting the deferral limit could miss out on matching contributions.

The process will be clarified through the new changes, which take effect beginning January 1, 2021. Using something called the “spillover method”, employees will no longer need to make separate catch-up contributions within the payroll system. Contributions will simply continue until participants reach the elective deferral limit for the year. For those who are aged 50 and older, any contributions beyond that point will automatically be counted as catch-up contributions.

This year, the regular contribution limit is $19,500 with an additional catch-up contribution limit of $6,500. Annual limits are announced in the Fall of each year.

For more information on TSP contributions or any other aspect of federal employee retirement, give us a call. We can help you take advantage of opportunities to plan for a more stable future.

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