One of the biggest perks of the Thrift Savings Plan (TSP) is the generous government match. Yet, there is some confusion around whether the agency’s match counts toward the annual employee contribution limit set by the IRS. This confusion probably stems from the fact that there are two limits imposed on qualified defined contribution plans, which the TSP falls under. So, let’s look at both contribution limits to better understand how much you and your agency can contribute.
Employee Elective Deferral Limit
The first limit you should be aware of is called the elective deferral limit and is the limit on the contributions you as the employee makes to your TSP. The elective deferral limit for 2021 is $19,500, and if you’re 50 or older, you can contribute an additional $6,500. The good news is that these limits do not include your employer contributions, meaning your agency match will not impact the amount you can contribute. For example, if you contributed $19,500, your agency could still contribute $10,000, and you would not have exceeded the IRS elective deferral limit.
Total Contribution Limit
The second limit you should know about is called the annual additions limit, and it’s a limit on the total combination of your elective deferrals and any additions made by your agency. Hence, this limit does include your agency match. For 2021 the annual additions limit is the lesser of either 100% of your salary up to a certain limit or $58,000 ($64,500 for those age 50 and older). For example, if you contributed $19,500 this year, your agency could only contribute $38,500, which shouldn’t be an issue for most federal employees.
In summary, remember that there are two contribution limits, the employee elective deferral limit and the annual additions limit. Since your agency match does not count toward your annual elective deferral limit, you are free to contribute the maximum amount each year without regard for your agency match. If you would like some tips on investing in your TSP, watch this video. As always, if you want specific financial advice or would like help developing your financial plan, consult with a qualified financial planner.