Are You Maximizing Your TSP Match?

Are You Maximizing Your TSP Match?

TSP Contribution Limits

Are you making the most of your TSP contributions?

In 2021, the maximum amount you can contribute to TSP is $19,500 annually.

However, if you’re age 50 or older, you can contribute an additional $6,500 which is known as a “catch-up” contribution.

For those age 50 and older the maximum contribution amount is $26,000 ($19,500 + $6,500).

How Your Contributions Are Matched

The maximum amount you can receive for a TSP match is 5% of basic pay from your agency.

If you started federal service on or after October 1, 2020, you were automatically enrolled at 5% contributions.

The first 3% of basic pay is matched dollar-for-dollar.

The next 2% of basic pay is matched 50 cents on the dollar.

Plus, your agency will automatically contribute 1% of basic pay per year.

The infographic below shows the breakdown.

Source: OPM.GOV

 You can contribute more than 5% of basic pay, but it won’t be matched by your agency.

Your individual contributions can be made to either the Traditional TSP or Roth TSP.

With the Traditional contributions, you receive a tax-break now, but pay taxes on the withdrawals in the future.

With the Roth contributions, you pay the tax now, but receive earnings and distributions tax-free (subject to certain requirements) down the line.

Also, a quick note on the Roth contributions…

If you make Roth TSP contributions, you’ll receive the matching amounts outlined above, but they will be contributed to your Traditional TSP account.

The matching amounts from your agency cannot be made to your Roth account.

Should You Front Load Your TSP?

One question we get asked often is “should I front-load my TSP?”

This is especially common among high earners who reach their contributions limits each year.

The thought process entails contributing a large percentage early in the year, reaching your contribution limit, and then letting the interest accumulate the rest of the year.

This might work well in a favorable (bull) market, where contributions are guaranteed to grow for the duration of the year.

However, there are no guarantees on the performance of your selected fund for the rest of the year.

Most importantly, the employee will lose out on any matching funds if they reach their contribution limit prior to year-end.

The agency matches 5% of basic pay each pay period — if there’s no contributions in pay periods at the end of the year — there’s no match!

Maximize Your Contributions

OPM.gov has great tools and resources for you to utilize.

Among these is “How Much Can I Contribute?”

This tool will allow you to determine how much you can contribute each pay period, while ensuring you receive all matching amounts.

You won’t hit your annual contribution limit until the last pay period of the year.

It’s a win-win for you.

Conclusion

It’s always good to check with a financial professional before making decisions around your retirement.

If you’d like to learn more, schedule your complimentary federal benefits review and retirement analysis here with a licensed insurance professional.

For additional information, you can also contact your friends at GPIS by calling 866-201-7829 or by sending an e-mail to info@gpis4u.org.

-Sam Wiss, RICP

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