Beginning on Jan. 1, 2021, the catch-up contributions surrounding retirement funds will soon get easier, officials said. According to the official TSP website, if you’re turning 50 or older, you’ll no longer need to make two separate elections each year in order to take advantage of catch-up contributions. Under this new system, employees that are eligible for catch-up contributions can set one contribution rate, and once they hit the annual limit, the TSP will then automatically start funneling the rest of their contributions for the year into catch-up contributions.
Federal employees that are age 50 or older can contribute more to their retirement accounts than the typical cap that is placed on individual retirement accounts (IRAs) set by the Internal Revenue Service. This can be accomplished by taking advantage of a program that is intended to help get older employees ready for retirement. For this to take place, the federal employee must elect to then make a separate catch-up contribution, and also regular contributions to the TSP must be in line to hit the annual contribution limit.
Multiple participants that were eligible for catch-up contributions under the current system were putting enough of their paychecks into the retirement savings program that exceeded the normal annual limit. However, because they had not set up a separate catch-up contribution, the agency stopped collecting money when it hit the annual limit.
Now, your contributions will automatically count toward the IRS catch-up limit if you meet the elective deferral limit and keep saving beyond your TSP annual contributions. If you’re eligible for an agency or service match, contributions spilling over toward the catch-up limit will qualify for the match on up to 5% of your salary. Your election will carry over each year unless you submit a new election.
TSP wrote to its members in a recent statement and email that, “If you’re eligible for an agency or service match, contributions spilling over toward the catch-up limit will qualify for the match on up to 5% of your salary.
For 2020 catch-up contributions, you do still need to complete the current process and make a separate election. Check current contribution limits to make sure you’re on track this year.