Many federal employees are eager to maximize their retirement savings contributions. They want to be informed about any changes in tax laws that could impact their retirement savings. After all, our retirement savings are like our piggy banks, and we want to make sure we’re saving as much as possible.
Many federal employees reading this are also investing in private stock ETF and mutual fund accounts while simultaneously investing as much as they can into their Thrift Savings Plan (TSP) accounts. Increasing the ceiling allows even more tax deferral and tax-deferred wages (Traditional TSP) and 100% compounding of gains, and/or post-tax contributions but tax-free gains (Roth TSP), which could feel oh so good.
Let’s explore the latest developments and offerings, as there are more opportunities available than ever before. There are some special rules and increases associated with those rules for 2025 about which federal employees should be aware.
New TSP Max Funding Options in 2025
Let’s suppose you will not turn age 50 or older in 2025, but you still want to contribute the maximum to your TSP. The maximum contribution limit in 2025 for those younger than age 50 is $23,500. Let’s break it down by pay period to make it crystal clear:
Under Age 50
$23,500/26 pay periods = $904
Well, not exactly; it amounts to $903.85 per pay period. To simplify the process, we round it up to the nearest dollar. The last pay period your pay site will withdraw from will automatically reduce the amount from $904 to $900 to prevent excessive contributions. We want to ensure compliance with tax laws for your TSP.
The maximum contribution limit is now $7,500 in the year your turn age 50. The TSP has updated its process to make it simpler; you can add the catch-up contribution along with the maximum contribution of $904 on the same line. Let’s review the lines below for more information.
The Year You Turn Age 50 or Older
$23,500/26 pay periods = $904
Catch Up Age 50 or Older
$7,500/26 pay periods = $289
Well, not exactly; it equals $288.46, but by now you get the point.
TOTAL Maximum TSP Contributions for 2025 Age 50 or Older
$31,000/26 = $1,193
This excludes the final pay period, 26, when the amount will be reduced to $1,175 to prevent overfunding.
We understand that the final amount of $1,175 may seem unusual, but if you simply allocate a maximum funding of $1,193 from the beginning of pay period 1, you won’t encounter any issues.
The Years You Turn: Age 60-63
This section might appear unusual, but it also offers significant advantages. The rules are particularly advantageous for individuals turning ages 60-63 in 2025. For these individuals, the catch-up provisions are even more generous. The limit is now $11,250, up from the previous $7,500.
Let’s again note the calculation:
Catch Up: Age 60-63
$11,250/26 = $432.69
Total maximum TSP contributions are now an incredible $34,750 annually, for those between the ages of 60-63 only. Again, it appears somewhat arbitrary and odd, but these are the rules. They present a valuable opportunity to those of you who can take advantage of them. Perhaps the message is that the government would like you to retire by around age 64, but you obviously don’t have to. Take a look at the calculation below:
$34,750/26 = $1,337
This again excludes the final 26th pay period where the amount will be reduced automatically to $1,325. This is only applicable to individuals aged 60 to 63 during the years they contribute to their TSP, or 401K for that matter.
Let’s review the new increases in the maximum contributions to your TSP for each pay period in 2025.
- Younger than Age 50 – $904
- The year you turn Age 50 – $1,193
- The years you turn Age 60-63 – $1,337
Special Caveat
Starting in 2026, if your earnings exceed $145,000 in the previous year, you’ll be required to contribute to your Roth TSP instead of your traditional IRA. This change applies to contributions made in 2026 and beyond.
Why All of This Matters
Let’s say a federal employee who earns $100,000 annually and currently has a $100,000 balance in his TSP decides to contribute $900 a pay period for the next 15 years. For illustrative purposes only, let’s assume he earns an 8% rate of return. However, it’s important to note that actual returns may vary.
Scenario
- $100K Balance
- Funding $900 per pay period for the next 15 years
- 5% agency match, based on a salary of $100,000 annually, adds another $5,000 annually
- 8% annual rate of return assumed
- Ending Balance = $1,088,337
This scenario isn’t bad at all. Imagine if you invested more, utilized the catch-up provision, began with a larger balance than $100K, and achieved a more substantial rate of return.
Considering All The Other Advantages
Understanding that every dollar invested in the TSP either postpones your tax liability and reduces your current taxable income, or enables you to accumulate a tax-free savings account (the Roth TSP) for retirement, presents compelling reasons to maximize your contributions if it fits within your budget.
