TSP limits

Attention federal workers who turn 50 next year: You'll be able to put up to $14,000 into your Thrift Savings Plan account in 2003.

But don't worry about that yet.

For now, you only need to worry about two numbers: $12,000 and either 13 percent or 8 percent.

During the TSP open season that ends on Dec. 31, you can decide how much money you want to contribute into your TSP account each pay period in 2003. Money you contribute to the TSP is deducted from your paycheck. No taxes are deducted from TSP contributions, and the money in your account helps build up your retirement nest egg.

If you are in the Civil Service Retirement System (which, if you're 50 or older, you probably are), then you can contribute up to 8 percent of your paycheck into the TSP, up to an annual limit of $12,000. You have to make $150,000 a year to be affected by the annual limit.

If you are in the Federal Employees Retirement System, then you can contribute up to 13 percent of your paycheck to the TSP, up to the $12,000 annual limit. You have to make $92,307 to be affected by the annual limit.

When you submit your contribution level to your payroll office, you can set your biweekly TSP deductions as a percentage or as a dollar amount.

If you're not affected by the annual dollar limit, then you can max out your contributions by selecting the highest percentage limit, either 8 percent or 13 percent (depending on your retirement system).

If you are affected by the annual limit, you can divide the $12,000 limit by 26 (the number of biweekly pay periods in 2003) and max out your contributions at $462 per paycheck. You'll want to select a dollar amount rather than a percentage because if you hit the annual limit before the end of the year, then you won't receive matching contributions from your agency for the last few pay periods of the year. Agencies match TSP contributions on up to 5 percent of pay per pay period.

In a simplified example, say you make $120,000 a year and are in the Federal Employees Retirement System. That means you can contribute up to 13 percent per pay period to your TSP account. But if you opt to contribute 13 percent per pay period, then you would hit the $12,000 annual limit after 20 pay periods. You would lose out on six weeks of matching contributions. Since agencies put up 4 percent of your pay on the first 5 percent of pay per pay period, you would lose out on about $1,100 in matching contributions.

Instead, you can opt to contribute $462 per paycheck to the TSP and collect all of the matching contributions that you're able to.

(For more on maxing out on TSP contributions, see the TSP fact sheet, Annual Limit on Elective Deferrals, but keep in mind the $12,000 and 13 percent and 8 percent limits for 2003.)

Again, the $12,000 annual limit and 13 percent and 8 percent per-paycheck limits are all you need to worry about for now.

But if you turn 50 in 2003, then in mid-year 2003 you'll be able to change your TSP contribution level and put another $2,000 into your account.

That's because of a new law that allows federal workers aged 50 or older to make so-called "catch-up contributions" to their TSP accounts, starting in 2003. The TSP board is working on regulations and procedures for the catch-up contributions. Agencies are working on changes to their payroll systems to accommodate the catch-up contributions. The TSP board expects that work to be done in mid-2003.

From April 15 to June 30, the TSP will hold another open season. During that open season, you can worry about the catch-up contributions. If you've maxed out your per-paycheck contributions at 13 percent or 8 percent of pay, you'll be able to increase your contributions so that another $2,000 is withheld from your paychecks during the second half of the year. If you've maxed out so that you'll hit the $12,000 standard annual limit during the last pay period of the year, you'll be able to increase your contributions so that you'll have contributed $14,000 by the end of the year and still collected all of your agency's matching contributions.

But for now, you don't have to do anything about the catch-up contributions, nor can you. Worry about the catch-up contributions in April. For now, worry about the $12,000 annual limit and the 13 percent and 8 percent per-paycheck limits.