How Much Can You Contribute to the TSP in 2010?
By
John Grobe
Saturday, October 17, 2009
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Sometimes no change can be good. Here is some good news for federal
employees. On October 15th the Internal Revenue Service announced
the elective deferral limit for defined contribution plans such as
the Thrift Savings Plan.
Although there was some concern that the limit would decrease, that did not
happen. (refer to the article
Pay Attention to Your TSP Contribution Limits) The elective
deferral limit for 2010 will remain the same $16,500 that it was in 2009. In
addition, the catch-up contribution limit will remain at $5,500.
Highly compensated FERS employees should avoid choosing a percentage
contribution that would result in their reaching the annual deferral limit
before the last pay period of the year.
Once a person reaches the annual deferral limit ($16,500 in 2010), they
cannot contribute to the TSP for the remainder of the year. Once they stop
contributing, Uncle stops contributing his matching contributions of 4% of
salary. The agency automatic 1% contributions will continue whether or not
an employee is making TSP contributions.
A way to avoid losing government matching contributions is to elect to
contribute a flat dollar amount per pay period, rather than a percentage of
salary.
If you have 26 paydays this year, you would divide $16,500 by 26 and the
answer, roughly $635, is the amount that can be contributed per pay period
so that the elective deferral limit won't be hit until the last pay period,
and no government matching contributions will be lost. If there were 27
paydays, the amount would be roughly $611.
What about those of us for whom the amounts of $611 or $635 per pay period
are unrealistic? It is better to contribute a percentage of your salary
rather than a flat dollar amount. By electing a percentage of our salary,
the amount of our contributions will increase each time we have a pay
increase.
Catch-up contributions can be made by those who are 50 years old or
older. If you turn the age of 50 during the year, you may make catch-up
contributions from the beginning of the year. Catch-up contribution
elections do not carry over from year to year. You have to make a new
election each year.
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