It’s a match – Understanding TSP Contributions and Automatic Enrollment, including a TSP matching contribution example.
When a federal employee comes aboard in his or her agency, they are automatically enrolled to contribute 5% of their gross salary to their Thrift Saving Plan (TSP) account. 5% is also the highest amount for which a match will be received. This match is often called ‘free money from the government.’
How the TSP Match Works
First, your agency contributes 1% of your base salary to the TSP no matter what. You can call this a “match” but they’ll make this deposit for you even if you’re not contributing yourself. So, yes, this 1% is technically an additional amount on top of your salary. If a Fed makes $50,000 per year- their agency is putting an extra $500 in their TSP every year.
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Next, you’ve got the actual matching from your agency. If you put in 3% of your pre-tax pay into the TSP, the agency you work for will match up to that 3% dollar-for-dollar. For our hypothetical employee mentioned above, he or she can put in $1,500 (3% of $50,000) into their retirement savings account and the US Federal agency they work for will also put in $1,500. You can also choose to put any or all of employee contributions into a Roth TSP account, but the agency and government matched contributions have to go into your traditional TSP account.
Then, if an additional 2% is rationed off for the TSP from your salary, the agency won’t keep matching 1-for-1, but they will put up 50 cents for every dollar contributed… until reaching 5%. Going back to our example worker: if they contribute 5% of their annual pay to the TSP, they’ll get the $1500 for the 3% and then a $500 match for the other 2% ($1000) personally committed.
This sounds simple enough, but as expected, there’s a snag that is often overlooked: the federal government will require you to divide this 5% contribution evenly over a calendar year’s 26 pay periods, if you want the full match. To avoid overcomplicating things, just remember the match somewhat operates on a per-paycheck basis, and matching contributions will not exceed the match that would be given if a Fed evenly put 5% of their biweekly paycheck into the TSP. See the table below, which illustrates how this works:
TSP Matching Contribution Example
If a federal worker wants to contribute more than 5% per paycheck, they will lose out on the full match. In scenario 2 below, this federal employee is trying to contribute 5% of his annual salary as fast as possible and contributes $300 biweekly. Scenario 1 shows the biweekly contributions for an employee with the same salary ($50,000) as scenario 2, but they are contributing just 5% ($96.15) every paycheck. (Note 3% of the match is dollar-for-dollar while the other 2% matches $0.50 for every dollar.)
Scenario 1 vs. Scenario 2:
| Pay Period | Employee | Agency Match | Employee | Match | |
| 1 | 96.15 | 76.92 | 300.00 | 76.92 | |
| 2 | 96.15 | 76.92 | 300.00 | 76.92 | |
| 3 | 96.15 | 76.92 | 300.00 | 76.92 | |
| 4 | 96.15 | 76.92 | 300.00 | 76.92 | |
| 5 | 96.15 | 76.92 | 300.00 | 76.92 | |
| 6 | 96.15 | 76.92 | 300.00 | 76.92 | |
| 7 | 96.15 | 76.92 | 300.00 | 76.92 | |
| 8 | 96.15 | 76.92 | 300.00 | 76.92 | |
| 9 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 10 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 11 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 12 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 13 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 14 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 15 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 16 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 17 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 18 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 19 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 20 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 21 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 22 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 23 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 24 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 25 | 96.15 | 76.92 | 0.00 | 19.23 | |
| 26 | 96.15 | 76.92 | 100.00 | 76.92 | |
| TOTAL | 2500.00 | 2000.00 | 2500.00 |
1019.22 |
One look at the totals ($2000 v. $1019.22) demonstrates how this aspect of TSP contributions can hurt one’s retirement is mismanaged. Even though both scenarios ultimately contributed the same amount from their pay ($2500 total), the employee in scenario 1 had $980.78 more contributed to their TSP from their agency. The difference ($2000 - $1019.22) of $980.78 might as well be chalked up as a loss for the worker in the 2nd scenario. Compounded over a decade or two, that’s when these losses can be more damaging.
Contributing to the Max
The 2024 TSP contribution limit is $23,000 and for those over 50, they can contribute an additional $7500 as catch-up contributions. $23,000 is almost 50% of the salary in the example above so federal employees are able to contribute more than 5% of their pay to the TSP. The government and the employing agency just won’t match more than 5% each year. To get the full match and also contribute the maximum amount, a federal employee can take the IRS limit and divide it by the number of pay periods in a year – 26.
For those under the age of 50, that’s $23,000 divided by 26 = contribute $884.61 per paycheck.
For those who are at least the age of 50, it’s $30,500 / 26 = $1173.07 each pay period.
Automatic Enrollment in the TSP
In October 2020, the FRTIB (Federal Retirement Thrift Investment Board) changed the automatic enrollment for new hires (and re-hires who were gone over 31 days) from 3% to 5%. If a new Fed doesn’t want to contribute 3%, 5%, or anything at all, they would need to submit a request on TSP.gov. Then, if they want a refund for what had been automatically contributed on their behalf, the electronic equivalent of the old form TSP-25 will help them accomplish this, but it must be submitted within 90 days of joining the Federal workforce. Lastly, if a Fed quits working for the government after less than 90 days on the job, and their TSP account is valued at $200 or more, they can receive a refund as well. Neither types of refunds include the agency or government matches, they consist solely of what was contributed automatically from the employee’s salary.
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**Written by Benjamin Derge, 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 Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.
TSP Matching Contribution Example for illustrative purposes only.
***The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.***
