2021 TSP Catch-up Contributions and the Spillover Provision
If a federal employee has reached or will reach their 50th birthday in 2021 they are eligible to make “Catch-Up” contributions to their TSP account. The maximum catch-up contribution in 2021 is $6500. This contribution is in addition to the regular contributions that all federal employees are eligible to make, regardless of age. For 2021, the regular contribution limit as announced by the IRS will be $19,500, which is unchanged from 2020.
The TSP has made a significant improvement that will take effect in January 2021 which is going to make it much easier for employees to make catch-up contributions. Known as the “spillover” provision, employees will no longer need to make separate elections for their regular and catch-up contributions. This is welcome news for employees who traditionally are required to update their catch-up elections each year. In our experience, oftentimes, employees may either not realize they needed to make the election each year, or simply forget to do so. The spillover feature will hopefully make this process automatic from year to year going forward.
While everyone agrees the change is welcome, the implementation of the change is causing confusion for many employees looking to maximize their TSP accounts in 2021. In order to make a catch-up contribution in 2021 employees will still need to update their payroll elections as they have done in years past. Payroll offices are currently completing the transition to this new process and we have been given some guidance that we hope will be helpful to employees looking for clarification on the new process.
While employees will still need to make a 2021 election, they will not have to make a separate election for regular and catch-up contributions. Rather, they will make one election, indicating how much they wish to contribute per pay period. Once an employee reaches the regular contribution limit ($19,500 for 2021) any additional contributions will automatically spill over to the catch up side if the employee is age 50 or older in the current year. For example, someone who wants to contribute the full $26,000 (regular and catch-up contribution) to their TSP for 2021 will elect to contribute $1,000 per pay period effective with the first pay period in 2021. Remember, the employee must be age 50 or older in 2021. Someone who turns 50 in 2021 is eligible for the full contribution.
Please make sure to consult with your payroll personnel to ensure you are optimizing your TSP contributions for 2021 and beyond. At Serving Those Who Serve we are here to help you navigate the changing landscape and are happy to answer any questions you have.
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**Written by Jennifer Meyer, Financial Planner. 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 Jennifer Meyer 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.**
2021 TSP Catch Up Contributions