Federal Employees News Digest

Informed Investor: Understanding annual TSP contribution limits - Part II

This second of two columns discussing annual contribution limits to the Thrift Savings Plan examines what employees should do to avoid contributing more than the maximum allowed amount during the calendar year, namely the annual elective deferral limit. During 2016, the limit is $18,000. Employee TSP contributions via payroll deduction include traditional TSP contributions, Roth TSP contributions, or a combination of traditional and Roth TSP contributions.

One type of employee contribution is not counted toward the elective deferral limit. “Catch-up” contributions—contributions made by employees who are 50 or older—are not part of the elective deferral limit. During 2016, an employee age 50 or older as of Dec. 31, 2016, can contribute a maximum of $6,000 in catch-up contributions to the TSP. Employees must make a separate election each year to make these contributions.

Employees who contribute both to a civilian and to a uniformed services TSP account are limited by the annual elective deferral limit with respect to the total contributions made to both accounts. During the year, the TSP will apply the elective deferral limit to each account separately, and will not allow an employee to contribute any amount to either account that exceeds the limit. In January, the TSP will check to see whether an employee’s combined contributions to both accounts exceeds the elective deferral limit. If it does, then the TSP will return any excess contributions, along with any earnings on those contributions. The TSP will return excess contributions and earnings first from the contributions the employee made to the uniformed services TSP account. If an employee made both traditional and Roth contributions during the year, then the excess contributions and earnings returned to the employee will include a proportional amount from the employee’s traditional and Roth TSP balances.

What should employees do at this time to ensure that they do not exceed the 2016 elective deferral limit of $18,000? The first step is for an employee to look at his or her most recent “leave and earnings” statement and find out how much he or she has contributed to the TSP year to date. Employee contributions include both traditional and Roth TSP contributions.

The second step for an employee is to determine how many pay dates remain between the first pay date when the new calculated TSP contribution amount becomes effective and the employee’s final pay date in December 2016. There may be five or six remaining pay dates.

The TSP has provided a worksheet to assist employees in calculating their optimum amount to be deducted from their paychecks for the remainder of 2016 in order for the employee not to exceed the $18,000 limit before his or her last pay date of 2016. The worksheet is reproduced below. One additional consideration for FERS employees: The employee contribution each pay date should ideally be at least 5 percent of the employee’s gross salary. In so doing, the FERS employee will receive the maximum agency match of 4 percent for 2016.

 Worksheet to Maximize the Amount of Agency Matching Contributions

   Example 1  Example 2
 1. Enter the IRS’s elective deferral limit for 2016.  



 2. Enter all elective deferrals made in 2016 prior to the
    effective date of your new election.   



 3. Subtract Line 2 from Line 1.



 4. Enter the number of pay dates you will receive in 2016
    from which your new election will be deducted.*



 5. Divide Line 3 by Line 4.



 6. Round up the result in Line 5 to the next dollar to determine
   the whole dollar amount you should contribute each pay date
   for the remainder of calendar year 2016 (which you will enter 
   on your Form TSP-1 or TSP-U-1).



* Employees can confirm the remaining number of paydates with their agencies or services.

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Edward A. Zurndorfer Certified Financial Planner
Mike Causey Columnist
Tom Fox VP for Leadership and Innovation, Partnership for Public Service
Mathew B. Tully Legal Analyst

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