Q. One of my co-workers insists that the TSP contribution limit of $18,000 covers both his contribution and the government’s matching contribution, so therefore he is contributing less than the full $18,000 each year. Is he missing out on a savings opportunity?
A. Absolutely! The $18,000 amount that you can contribute is called the elective deferral limit, that is, the amount that you can contribute and defer paying taxes on (as long as you are contributing to your Traditional TSP balance). Agency contributions are over and above that amount.
Let’s say that you are making $100,000 a year and are contributing 18% of your salary ($693 per pay period). Uncle Sam will be contributing another $5,000 (5%) to the TSP, giving you a total of $23,000 in the TSP. If your co-worker is also making $100,000 a year, he is contributing $5,000 less than he is allowed to.
Your co-worker’s misconception is not uncommon among FERS employees. All federal employees should avail themselves of an opportunity to attend a pre-retirement seminar if their agency offers them.