TSP catch-up contributions program to start in July

Federal employees age 50 or older will be able to put extra money in their 401k-style Thrift Savings Plan accounts beginning in July, the board that runs the TSP announced recently.

The change will allow employees over the age of 50 to contribute up to $2,000 more per year than the standard limit on TSP contributions. The standard limit per pay period is 13 percent of pay for Federal Employees Retirement System employees and 8 percent for Civil Service Retirement System employees, up to an annual limit for 2003 of $12,000. With the so-called "catch-up contributions," employees age 50 or older could contribute as much as $14,000 this year to their TSP accounts.

TSP contributions are withheld from employees' paychecks before taxes are.

In a Feb. 7 bulletin to federal officials, the TSP board said employees could sign up for the catch-up contributions program beginning in July. TSP participants can start having catch-up contributions withheld from their checks starting with the first full pay period in August. Previously, the board had not committed to a date for the new program.

Employees in both retirement systems are eligible to make catch-up contributions.

Catch-up contributions were originally designed by Congress to allow women who entered the workplace later in life to make up retirement savings that they missed while staying home and raising a family. But lawmakers decided to allow anyone age 50 or older to take advantage of the contributions. Congress created catch-up contributions for private-sector workers in 401k retirement savings programs in 2001. Then in November 2002 President Bush signed a law championed by former Rep. Connie Morella, R-Md., allowing federal workers to make such contributions to the TSP.

To make catch-up contributions this year, employees must be 50 years old by Dec. 31, 2003. Employees must also make standard contributions up to the per-pay-period or annual limits if they want to also make catch-up contributions.

For example, suppose a 50-year-old FERS employee who makes $95,000 a year contributes 13 percent per pay period to the TSP. For the year, that's $12,000, the maximum currently allowed. Under the catch-up contributions program, the employee could contribute an additional $200 per pay period for 10 pay periods beginning in August to get up to the new limit of $14,000 for the year.

Unlike standard contributions, agencies do not match catch-up contributions. The contributions are invested among the five funds in the TSP (common stocks, international stocks, small- and medium-firm stocks, bonds and government securities) based on the contribution allocation that an employee picked for his or her standard contributions.

Federal retirees and other people who no longer work for the government are not eligible to make catch-up contributions.