In accordance with the Internal Revenue Code, the IRS limits the amount that employees can contribute via payroll deductions to their qualified retirement plans. Qualified retirement plans include 401(k), 403(b) and 457 retirement plans. These limits also apply to the Thrift Savings Plan (TSP), even though the TSP is not considered a qualified retirement plan.
Every November, the IRS announces to all employers (including the federal government through the TSP) the maximum amount that employees can contribute to the qualified retirement plans and to the TSP during the following calendar year. The employee contribution limits are called annual “elective deferrals.” There are also limits on “catch-up” contributions that employees who are age 50 or older as of the last day of December of that year can make during the following calendar year.
During calendar year 2025, federal employees were eligible to contribute a maximum $23,500 in “elective deferrals” – a combination of traditional TSP and Roth TSP contributions. During 2025, employees aged 50 to 59 and employees over age 63 were limited to contribute an additional $7,500 in “catch-up” contributions for a total TSP contribution of $31,000 ($23,500 plus $7,500). Those employees aged 60,61,62 and 63 (employees born between January 1,1965 and December 31, 1968) were entitled to make a “super catch-up” contribution of $11,250 for a total contribution of $34,750 during calendar year 2025.
This column explains what happens in the situation in which a federal employee participated in both the TSP and another qualified retirement plan during 2025. The employee may have made excess contributions through “elective deferrals” and “catch-up” contributions during calendar year 2025 .
For example, during 2025 some federal employees may have participated in the TSP and in a 401(k)retirement plan provided by a private employer. When added together, the employee’s total retirement plan combinations exceeded the $23,500, $31,000 or $34,750 contribution limits for calendar year 2025. Note that a FERS-covered employee’s automatic agency one percent of current year SF 50 salary and matching contribution are not included in the 2025 $23,500/$31,000/$34,750 contribution limits. The following example illustrates how a federal employee made excess contributions to the TSP and another qualified retirement plan during calendar year 2025.
Jerome, aged 58, retired from federal service on September 30, 2025. Between January 1,2025 and September 30,2025, Jerome contributed the maximum $31,000 to his TSP account. This includes $20,000 to his traditional TSP account and $11,000 to his Roth TSP account. On October 1, 2025, Jerome started a new job with a private company in which he participated in the company 401(k) plan. He contributed $10,000 in elective deferrals to his 401(k) plan. For 2025, Jerome contributed a total of $31,000 to his TSP and $10,000 to the 401(k) plan for a total of $41,000. Jerome therefore contributed to his qualified retirement plans for the year 2025 an excess of $10,000 ($41,000 less $31,000), for an employee aged 58 during calendar year 2025.
In order to explain what happens when a federal employee makes excess deferrals to multiple employer-sponsored retirement plans including the TSP, during a calendar year, the following situations are presented:
Situation 1. A federal employee is a member of the Uniformed Services Ready Reserves. During 2025, the employee contributed both to the civilian TSP and to the Uniformed Services TSP (while on active duty).
In this situation, the TSP in January 2026 the TSP will check to see whether the employee’s combined contributions to the two accounts have not exceeded the total “elective deferrals” and “catch-up” contribution limits.
To do so, the TSP will add the traditional TSP and the Roth TSP contributions made to both accounts. The TSP will then return any contributions that exceeded the applicable limit, along with any accrued earnings associated with those contributions. The TSP will perform this action no later than April 15, 2026. Note the following:
- Any traditional TSP contribution made by a Uniform Service Ready Reserve member serving in a combat zone does not count towards the “elective deferral” limit.
- Elective deferrals and any accrued earnings made to a Uniformed Service TSP account will be returned to an employee before any elective deferrals made to a civilian TSP account; and
- If an employee made both traditional TSP and Roth TSP contributions during the year, any excess deferrals plus accrued earnings will include a proportional amount from the employee’s traditional and Roth TSP accounts balances.
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
Situation 2. A federal employee contributed both to the TSP and to another qualified retirement plan during 2025.
Federal employees who contributed both to the TSP and to another qualified retirement plan during 2025 will know how much they contributed to each retirement plan when they look at their 2025 Form W-2 statements from each employer. They will receive their 2025 W-2 statements sometime during January 2026. Box 12 D on the W-2 statement shows the total amount of “elective deferrals” and “catch-up” contributions made to the traditional TSP or to the traditional qualified retirement plan (as shown on the private employer’s 2025 W-2 statement . For example, the traditional 401(k). Box 12 AA on the W-2 statement shows the total amount of ‘elective deferrals” and “catch-up” contributions made to the Roth TSP or to the Roth qualified retirement plan.
It is the employee’s responsibility to add the “elective deferrals” and “catch-up” contributions from each Form W-2 statement in order to make sure that the employee’s total contributions to both retirement plans do not exceed the 2025 contribution limits of $23,500/$31,000/$34.750.
If an employee discovers excess contributions, then the employee will need to decide from which retirement plan to request a refund of excess contributions. The employee is advised to request a refund of excess contributions from the retirement plan that will result in the least amount of loss of employer matching.
The TSP Process for Refunding Contributions
If a federal employee made excess contributions to his or her TSP account and to another qualified retirement plan during 2025, then the employee can request a refund of the excess TSP contributions. To do so, the employee must log into their MyAccount and request and fill out Form TSP-44 (Refund Refund Request Form). The employee may also contact the ThriftLine Service Center at 1-877-968-3778. Affected employees should note that the completed Form TSP-44 must be submitted to the TSP no later than March 15,2026 in order that the TSP can process the excess contribution refund by April 15, 2026.
Tax Consequences of Making Excess Contributions
Excess contributions are treated as income in the year in which the employee made the contributions whether or not the excess contributions are refunded to the employee. Returning to the example above in which Jerome made excess contributions of $10,000 during 2025, if he fills out and submits Form TSP-44 by March 15,2026, then the TSP should issue a refund of $10,000. The $10,000 will appear on Jerome’s 2025 W-2 statement on Box 3 (taxable wages).
A federal employee who made excess contributions to the traditional TSP and to a traditional qualified retirement plan must report the excess contributions on the employee’s current year tax return. Jerome will report the $10,000 as taxable wages on his 2025 federal and state income tax returns.
Treatment of Earnings on Excess Contributions for Tax Purposes
Accrued earnings associated with excess deferrals are considered taxable income in the year in which the earnings are distributed and not the year when they are earned. This is true for both the traditional TSP and the Roth TSP.
Affected employees will receive a separate IRS Form 1099-R (Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.) indicating the amount of the distributed earnings. The earnings must be reported as retirement income on the employee’s federal and state income tax return for the year in which the distribution is made.
Other Tax-Related Issues Associated with Excess Contributions Made to the TSP
- A FERS-covered employee receives matching contributions (maximum of four percent) from their agency. If a FERS-covered employee requests to have excess contributions and associated earnings returned to the employee, then the employee’s agency is required to remove the agency matching contributions and accrued earnings associated with these excess contributions.
- If the distribution of 2025 excess contributions and associated earnings is made by April 15, 2026, then the distribution will not be considered an early withdrawal and therefore will not be subject to the IRS’ 10 percent early withdrawal penalty.
- After April 15, 2026, an employee cannot request to have 2025 excess contributions refunded. The excess deferrals will remain in the employee’s TSP account. As such, when the traditional TSP account is distributed in the future, then the employee will be taxed twice on the distribution. The first year that the excess contributions will be taxed is the year in which the excess contributions were made. The second year that the excess contributions will be taxed the year in which the contributions are distributed.
If excess contributions were made to the Roth TSP account during 2025, and the excess contributions are not made by the April 15,2026 deadline, then the Roth TSP excess communications will not be treated as after-taxed contributions. As such, the “double taxation” rule associated with the traditional TSP excess communications will apply to Roth TSP excess contributions. The accrued earnings associated with the Roth TSP excess contributions will also be taxable. This is the case even if the Roth TSP participant meets the qualified Roth TSP distribution requirements.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. 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.
The examples are hypothetical stories and not indicative of any specific situations or client. It is presented only as an example and not intended as investment advice. Investing involved risk and there is no assurance that any investment strategy will be successful. Ð'dThe 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.Ô01(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.
You Might Also Enjoy This Podcast
Ed Zurndorfer, EA, ATA, CFP®, CLU®, ChFC®, CEBS®, ChFEBC℠: Federal Employee Benefits Expert
A former career Federal employee, Ed has published a staggering 1,200+ separate articles on Federal Benefits and Retirement!
Just “Google” his name, and you are likely to find a plethora of sites that contain his writings. Drawn to its mission to reach, teach
and serve Feds, Serving Those Who Serve is the only financial planning practice with which Ed has chosen to affiliate in over
20 years teaching. In addition to conducting Federal Benefits seminars for Serving Those Who Serve, you can find Ed’s
writings here on our blog in the FedZone, and on Fed-Soup, MyFederalRetirement, FederalNews Radio and NITP.
He is a member of the Maryland Society of Accountants, the National Association of Enrolled Agents, the International Society of Certified Employee Benefits Specialists, the Financial Planning Association, the National Association of Health Underwriters,
and the Society of Financial Service Professionals. Since 1999, Ed has taught many thousands of Federal employees about
their benefits, in person and at Federal agencies all over the country. Ed is a true national treasure.
Edward A. Zurndorfer is a CERTIFIED FINANCIAL PLANNER™ professional, Chartered Life Underwriter, Chartered Financial Consultant, Chartered Federal Employee Benefits Consultant, Certified Employees Benefits Specialist and IRS Enrolled Agent in Silver Spring, MD. Tax planning, Federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, and EZ Federal Benefits Seminars, located at 833 Bromley Street - Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. Raymond James is not affiliated with and does not endorse the opinions or services of Edward A. Zurndorfer or EZ Accounting and Financial Services. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. 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.