Maximizing Agency Contributions

[Lost Texan]

For my agency, there will no longer be a "percentage of salary" limit to contributions - meaning I will be able to contribute up to the maximum 15K for 2006. By my logic, if my agency is matching a total of 4% then I should contribute 96% of the 15K allowed by IRS.Therefore, I should plan on contributing $14,400 and letting my agency kick in the other $600 through the year. Does this make sense - any thoughts?

[Master]

The employer matching does not count against your MAXIMUM contribution. There is another formula for that, but given that they contribute 1% + up to 4%, most people don't need to worry about that.

see for example: http://www.finance.cch.com/sohoApplets/Retire401k.asp

[mlk_man]

HOW DO I MAXIMIZE MY TSP CONTRIBUTIONS WITHOUT LOSING IMPORTANT AGENCY CONTRIBUTIONS?
If you are covered by FERS, you could lose valuable matching Agency TSP contributions by reaching the IRS limit of $15,000 before the end of the calendar year. If you expect to submit your myPay (https://mypay.dfas.mil/mypay.aspx) election for 2006 between December 11- 24, 2005, and you want equal payments deducted over the calendar year for 26 pay days, you should not contribute more than $577 each pay period. If your election is filed after December 25th, you will need to adjust this amount. To determine the amount, subtract your 2006 Year to Date contributions from $15,000, and then divide that amount by the number of remaining pay days for 2006. The Elective Deferral (http://www.tsp.gov/forms/ocfs91-13.pdf) (.pdf) document provides more information. If you have further questions please ask your Benefits Contact (http://hr.od.nih.gov/Benefits/BenefitsContacts.htm).

[Wheels]

There are some who would advise front loading your TSP, especially if you think 2006 (or whatever year in question) will be a good year. In other words, figure how much 5% of your bi-weekly pay is. Add it up and subtract it from the $15,000 limit. Take the excess and contribute as much as you can afford each pay period until you reach that "excess" figure and then back off to your 5% figure. This is a recent strategy since it is only recently that we can change our allocations whenever we want (no more open seasons). Toocute for me!

Dave

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[Shaggy]

I believe you have the wrong thought on this. that 4% is 4% of pay not 4% of the total allocation. If 20% of your pay would ='s the 15,000 then you need only contribute 20%. The 4% would be added to the 20% for total contribution. So in essence you would be saving 24% of your income for retirement. You just need to make sure the % you allocate does not exceed the 15,000 by year end. If it does not then you should be OK. Remember the 4% is % of pay not the % of total allocation.

[pyriel]

Warning: There is a pitfall for those who would like to front end & max their TSP. Although it is a good idea to front load, one must still ensure that contribution towards the remaining pay period of the year is still happening. Agency will continue to pay the 4% +1% on a pay period increment. So, if they see that there is no contribution on that particular pay period, then they will not contribute. Thanks... Excerpt below was provided to me by Greg;-)



Mike Causey's Federal Report

Sep. 21, 2005

FrontLoading Your TSP

Yesterday's column about front-loading your TSP prompted a number of readers to warn of the downside (loss of matching contributions) of front-loading for workers under the FERS retirement system.

As Mary Johnson of Clifton, Va., writes:

Please let your readers know that making all of their TSP contributions in the first few weeks or months of the year will greatly reduce their TSP benefits. While this approach will allow an employee to have more money in the fund for a longer period, it will reduce the matching funds from their employer - losing up to 5% of matching contributions.

The key to ensuring matching funds for the entire year is to make sure you contribute in every pay period for the year. If the employee does not contribute in a given pay period, the government doesn¹t contribute either.

The key to maximizing contributions AND earnings is to contribute a higher amount during the first part of the year and then a reduced amount during the back end."

The vast majority of the people retiring next year, and over the next couple of years, will be under the CSRS system which has no government match. But for FERS employees front-loading does have its downside.

[Wheels]

I was only suggesting front loading the amount over the 5% needed to get the matching funds. For instance. If your salary is $4,000 a pay period, you need to put $200 a pay period into TSP to get the full match. That's $5,200 for the year. If you are going to put $15,000 in for the year, you are free to put the other $9,800 in as quickly as you would like without effecting your matching funds. Did that make more sense?

Dave

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[Dave M]

And yet we must put in our deduction as a percentage. They need to make it either/or. Oh, and don't forget over-50. D

Edit: my mistake, we can enter a dollar amount.

[Lost Texan]

While the concept of front loading, I think, is interesting - I'm not in a financial position to do that at the current time (I have three college 529 plans that need to be front loaded!). So bottom line is - if you want to contribute the max 15k thru the year without losing agency contributions -

26 pay periods - $577 total per pay period, $553.xx employee and $23.xx agency contribution.

Thanks for all the replys. This is a great site, wished I had found it sooner.

[Wheels]

That's not quite correct. You may contribute the entire 577 yourself. The agency match does not count against the limit.

Dave

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[Shaggy]

Is it just me or is he still not looking at it right. The 4% is 4% of pay not 4% of the $577.00. In other words if you make $4,000 a paycheck and contribute 15% to TSP then you contibute $600.00 and the government contributes an additional 4% of the $4,000 or $160.00. So the total contributed is $760.00. Make since.

Edit: And Wheels is right the $160 would not be counted toward the $15,000. So all you have to worry about is the % of your pay that does not exceed $15,000.

[Lost Texan]

Thanks, I think I finally got it. I'm a visual learner so the figures help. So It really doesn't matter what the 4% or macthing contribution is as long as I don't contribute more than 15K (assuming it is split through 26 pp and not front loaded).

I'm a little slow - but figuring it out. Thanks for all the help. I know that it would have been easy to go to my "benefits contact" but it would take me a whole work week to figure out who that is plus I live on the other side of the world so they would never answer the phone.