What Are the Limits on Employee Contributions to a TSP?
When you work for the federal government, you can take advantage of a retirement plan known as the Thrift Savings Plan. The TSP is a plan that combines employee and employer contributions to fund an individual's retirement. With this plan, you can contribute a maximum amount each year.
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Thrift Savings Plan Basics
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When you have access to a Thrift Savings Plan, you can contribute on a pre-tax basis. Once the money is in the account, you can choose from several investment funds in which to place your money. The earnings from the investments grow on a tax-deferred basis. When you reach retirement, you can start taking money out of the account and you will pay taxes on it at that time. You will pay the taxes based on your marginal tax rate.
Annual Contribution Limits
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When you choose to contribute to a Thrift Savings Plan, you can contribute a certain amount of money each year. As of the time of publication, you can contribute a maximum of $16,500 per year into your thrift savings plan. You can choose to contribute a certain percentage of your paycheck and the employer will automatically deduct the amount each time you are paid. You could also choose to have a specific dollar amount deducted from your paycheck.
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Catching Up
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Some people do not contribute as much as they should to the Thrift Savings Plan at an early age. This leads them to get behind on their retirement savings. If this is the case, the Thrift Savings Plan allows you to make catch-up contributions to your account each year. Once you reach the age of 50, you can start contributing an extra $5,500 per year to your account. This brings the total of your contribution up to $22,000 per year.
Making Contributions
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Once you are a federal employee and you have access to the Thrift Savings Plan, you can start contributing immediately. At that point, you can start and stop your contribution at any point. You can also choose the percentage that you want to contribute up to 100 percent of your income. Once you reach the dollar limit for the year, you will no longer be able to contribute. Your federal agency will also begin to contribute to your account.
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