The Thrift Savings Plan (TSP) offers Feds a unique opportunity to grow retirement savings with a government match of up to 5% of your salary. But did you know that contributing too much, too quickly, could mean missing out on part of your TSP contribution match?
If you max out your annual contributions before your last pay period of the year, you could lose hundreds of dollars — or more — in matching funds. Regardless of your age or income, missing out on even a small portion of the government match can have a lasting impact on your retirement savings.
Let’s take a look at why this pitfall occurs and what you can do to avoid leaving money on the table.
Understanding the TSP Match
Understanding how the TSP match works is the first step to ensuring you receive the full benefit each year. Here’s a quick refresher on how it’s structured:
- 1% automatic contribution: Even if you don’t contribute anything, the government automatically deposits 1% of your basic pay into your TSP account.
- Matching contributions up to 4%: For every dollar you contribute, the government matches it dollar-for-dollar up to 3% of your salary, then 50 cents on the dollar for the next 2%.
To get the full 4% match, you need to contribute at least 5% of your pay each pay period. However, here’s the catch: the match is applied per pay period, not annually. When you hit the contribution limit ($23,000 for 2024 for those under 50), the IRS prohibits putting even one more dollar into the account. If this happens before your final paycheck of the year, your contributions — and the government match — will stop for the remaining pay periods.
Why Contributing Too Quickly Could Cost You
Let’s illustrate this with an example. Assume you earn $100,000 a year and max out your contributions by September. In this case, you’ll miss out on the match for October, November, and December. Assuming bi-weekly pay periods, this mistake would cost you about $1,150.
While this might not seem like much, over the course of your career, it can really add up. Not only will you receive fewer contributions, but you’ll also miss out on the potential growth of those funds.
The bottom line? If you’re planning a Thrift Savings Plan max out, you must spread your contributions evenly across all pay periods in the calendar year to receive the full match and maximize the value of your TSP.
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How the FRTIB is Addressing This Issue
The Federal Retirement Thrift Investment Board (FRTIB) offers tools to help participants avoid losing out on their TSP match.
The TSP Contribution Calculator allows you to plan contributions evenly across pay periods, and the updated TSP account system makes it easier to monitor contributions and track progress toward the IRS limit. Targeted email campaigns also remind participants to adjust their contributions as needed to avoid hitting the cap too early.
Make Sure You Don’t Miss Your Match
Getting the most out of your TSP contributions and match requires just a bit of planning. Each year, follow these steps.
- Calculate Your Per-Pay-Period Contribution
Divide the IRS limit ($23,000 for 2024) by the number of pay dates in the year (26 for bi-weekly pay).
For example, $23,000 ÷ 26 equals about $884 per pay period. Adjust your contribution to this amount to avoid maxing out early. If you’re 50 or older, don’t forget to account for the catch-up contribution ($7,500 in 2024).
- Set Up Automatic Contributions
Use the TSP website or your agency’s payroll system to set up and automate your per-pay-period contributions. This ensures consistency and reduces the risk of over-contributing.
- Check Your Contributions Mid-Year
Reevaluate your contributions halfway through the year. Confirm you’re on track to hit the IRS limit evenly without maxing out before your final paycheck.
- Leverage TSP Tools
Use the TSP Contribution Calculator to plan and adjust contributions as needed.
Consistent TSP Matching Matters
Spreading your contributions evenly over the year can help you get the full 5% TSP contribution match for every pay period. This consistency matters because even small gaps in matching contributions can significantly impact your retirement savings over time.
The power of compound interest means that every dollar contributed and matched could grow exponentially, building on itself year after year. Securing the full match throughout your career may help you build a stronger and more stable financial future.
If you’re planning a Thrift Savings Plan max out or have questions about your contribution strategy, reach out to the team at Serving Those Who Serve at [email protected] for personalized advice.
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
