TSP Catch-Up Contribution Change Coming Soon, and More

Officials at the Thrift Savings Plan reminded participants last week of an upcoming change that they say will make it easier for those closer to retirement to make so-called “catch-up” contributions.

Currently, federal employees age 50 or older may contribute more to their retirement accounts than the normal cap on tax-free contributions as set by the Internal Revenue Service by taking advantage of a program intended to help get older employees ready for retirement. But in order to do so, their regular contributions to the TSP must be on track to hit the annual contribution limit, and they must elect to then make a separate catch-up contribution.

Beginning on Jan. 1, 2021, the process will be much easier, officials said. Under the new system, employees eligible for catch-up contributions can set one contribution rate, and when they hit the annual limit, the TSP will automatically start funneling the rest of their contributions for the year into catch-up contributions.

TSP officials said that under the current system, some participants eligible for catch-up contributions were putting enough of their paychecks into the retirement savings program to exceed the normal annual limit, but because they had not set up a separate catch-up contribution, the agency stopped collecting money when they hit the annual limit, effectively leaving money in the form of the 5% employer match on the table.

“If you’re turning 50 or older, you’ll no longer need to make two separate elections each year in order to take advantage of catch-up contributions,” the TSP wrote in an email to participants. “Instead, your contributions will automatically count toward the IRS catch-up limit if you meet the elective deferral limit and keep saving. If you’re eligible for an agency or service match, contributions spilling over toward the catch-up limit will qualify for the match on up to 5% of your salary.”

TSP officials also issued a bulletin Wednesday reminding notaries to include information if they have received an extension on their commission with any TSP forms they notarize. The program temporarily waived the requirement that participants with spouses have withdrawal forms notarized, but ended that suspension of the normal rules last month.

Many states have temporarily extended notaries’ commissions past their normal expiration date due to the COVID-19 pandemic, but TSP officials said they cannot accept notarized documents unless the notary includes “an annotation” or “supporting documentation” that their state has taken this step.

“We will not be able to process forms that have been notarized with an expired commission unless you include an annotation or provide supporting documentation,” officials wrote.