If you’re age 50 or over, you are eligible to contribute an additional amount to your Thrift Savings Plan account each year. Even better, the way that these special catch-up contributions work is changing for 2021. Not only can you contribute more, but it’ll be easier. Win-win.
What’s A Catch-Up Contribution?
There are limits on how much you can contribute to a TSP account each year. There are three different limits that apply to three different situations.
The Elective Deferral Limit is the “regular” limit that applies to most employee contributions except for contributions from income earned in a Combat Zone Tax Exempt location. The Elective Deferral limit for 2020 is $19,500, and it is likely to remain the same in 2021.
The Annual Additions Limit is a special limit that includes all contributions to your account, including contributions made from CZTE income, and government contributions and matching funds if you are enrolled in the Blended Retirement System. The Annual Additions Limit for 2020 is $57,500. There is some speculation that it may increase in 2021 – we shall see.
Then, there is the Catch-Up Limit. The catch-up limit applies to people who will be 50 or older during the calendar year. This amount is added to both the Elective Deferral Limit and the Annual Additions Limit. So, if you are 50 or older, your “regular” limit combined with the catch-up limit is $26,000 in 2020, and your additional limit combined with the catch-up limit is $63,500.
The way that you make catch-up contributions is changing. This year, and in the past, you had to make two separate contribution elections: one to meet the regular limit, and one to make catch-up contributions. Honestly, the way that catch-up contributions worked was confusing. The whole thing listed on your LES as a debt and then the debt got “paid” as you make the contributions over the year. Silly.
Beginning in 2021, there is a new and much better process. It is called the “spill-over” method for catch-up contributions. You will no longer need to make two different elections. You’ll go into your payroll system and adjust your TSP contribution election to meet the full amount that you want to contribute to your TSP.
Your designation contribution amount will continue to come out when you reach the regular contribution limit. The excess amount will “spill over” to the catch-up contribution limit.
As always, your contributions will be curtailed when you reach the limits for your situation.
What Do You Need To Do?
If you are age 50 or older, you need to make some changes in your payroll system (MyPay for military members). Increase your “regular” contribution amount to meet the full amount that you want to contribute.
Some people like to set up a slightly higher contribution so that they are sure to reach the full amount. The TSP system should not accept more than the contribution limit.
If you’re not eligible for catch-up contributions, you do not need to do anything.
I learned about this in a TSP newsletter. If you’re not on their list, I highly recommend you sign up. I’d send you to the TSP page talking about this, but I can’t find one yet.