I am always a big fan of anything that makes life simpler and easier. And the new spillover provision for the Thrift Savings Plan is going to do just that for eligible federal employees.
For those that haven’t heard about the details yet, let me catch you up.
TSP Spillover Provision Basics
First, let’s get a few things straight. For everyone that is younger than 50, the annual limit for the amount you can put in your TSP in 2020 is $19,500. If you are age 50 or older, you are able to put in an additional $6,500 for a total of $26,000 in 2020. This additional amount for those 50 and above is called catch up contributions.
Starting in January 2021, those eligible for catch-up contributions (age 50 and above) will not have to fill out separate elections for regular TSP contributions and catch-up contributions. All you have to do is fill out one election and once you hit the normal limit ($19,500) then any additional contributions will automatically “spillover” and become catch up contributions.
Why This Matters
Let me tell you why this is a big deal.
Previously, when those 50 and above had to make two elections, one for normal contributions and one for catch-up, if you elected to put “too much” as regular contributions then you would not get your agency’s full 5% match. This happens because up to this point, agencies did not match on catch up contributions. Fortunately, they will match on catch-up contributions starting in 2021.
Let me show you how this would happen.
Assuming there are exactly 26 pay periods in a year, let’s say George, our example FERS employee, decided to contribute $800 as regular contributions and $100 as catch-up contributions per pay period. This means that George was contributing a total of $900 per pay period.
Unfortunately, under the current rules, George would not get his agency’s full match.
Because George elected to put $800 as a normal contribution per pay period, a couple pay periods before the end of the year, he would hit the limit ($19,500) for regular contributions and if he wanted to put any more into his TSP, he’d have to do it as catch up contributions.
But if we remember, agencies don’t match on catch up contributions. This means that for the last couple pay periods of the year, he would not get any matching contributions from his agency.
To avoid this, George would have had to space his regular contributions more evenly throughout the year so that he was contributing at least 5% of his salary every pay period as regular contributions.
You Can Still Miss Out On Your Match!
With the new spillover provision, this process becomes a lot easier. FERS employees older than 50 only have to fill out one election and any amount contributed over the normal limit ($19,500) will automatically count as matching contributions. And, as I mentioned, starting in 2021, agencies will pay matching contributions on catch-up contributions.
But you aren’t out of the woods yet. You can still miss out on the full match even with the new rules. This would happen if you choose to “front-load” your TSP. Basically this would happen if you chose to contribute too much in the TSP so that you hit the total limit ($26,000) before the last pay period of the year.
Even with the new spillover provision, you will want to make sure that you are able to contribute at least 5% of your salary every pay period to get the full match.