Make Sure Your Thrift Savings Plan, Other Investments are Within 2021 Contribution Limits

A change to the Defense Finance and Accounting Service (DFAS) system in early 2021 may have allowed some Thrift Savings Plan (TSP) participants to exceed their contribution limits.  Here's how to make sure you don't get penalized by the IRS if you accidentally over-contributed.
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A change to the Defense Finance and Accounting Service (DFAS) system in early 2021 may have allowed some Thrift Savings Plan (TSP) participants to exceed their contribution limits.  

Typically, DFAS automatically returns excess contributions with a manual process. The upcoming system change will automate this process. It’s scheduled to start in the fourth quarter of 2021, according to  DFAS1

But, you may have accidentally overcontributed before these updates were installed.

What Happens if you Overcontributed to your TSP?

If you accidentally over-contributed to your retirement accounts, the IRS will charge you a 6% penalty for each year the excess funds remain in your account.

Here’s what to do to make sure you’re in the clear:

  • Check your most recent Leave and Earnings Statement on myPay2  to see how much you’ve invested in your TSP so far this calendar year. 
    • For 2021, If you’re under 50, that number shouldn’t exceed $19,500. If you’re 50 or older, you can contribute an extra $6,500 in “catch-up” contributions for a total annual limit of $26,000. The IRS can change these limits each year, usually increasing them based on inflation.  
  • If you haven’t over contributed to your TSP, but you have added to other retirement accounts that are subject to contribution limits (a 401(k), 403(b), 457, or SARSEP), add up your total contributions to be sure you’re under IRS limits.
  • If you find you have exceeded your overall contribution limits and you’d like a refund, choose the account that you’d like to receive the refund from.

You have until March 15 to request a contribution refund from your TSP. You can visit your local finance office to discuss your situation and determine whether you need to file a case management system (CMS) case with DFAS. 

If you’re looking to request a contribution refund from another retirement plan, contact that specific plan administrator. Their contact information can usually be found on your plan statements or online. 

New Changes Automate TSP “Spillovers” and Refunds

This year, DFAS has also implemented a “spillover” method to eliminate the need to make a separate election for catch-up contributions. 

For those 50 or older, the new spillover method, which began the first pay period of 2021, should apply excess contributions toward your $6,500 “catch-up.” 

The spillover method eliminates your paperwork. Contributors don’t need to fill out a catch-up contribution election or elect to make catch-up contributions through their electronic payroll systems3.

For those under 50, beginning in the fourth quarter of 2021, excess TSP contributions will be refunded automatically. Once you hit your limit, they’ll stop being deducted from your paycheck. 

Plan participants can monitor and track their contributions to ensure they’re not exceeding any limits imposed by the IRS.

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About Tony Rich

Tony is a 15-year Air Force veteran and an Independent Financial Advisor outside of St. Louis, Missouri. Tony joined the Air Force in 2007 as a Weather Forecaster before transitioning to the Air National Guard in 2011, where he served as a finance officer for five years.

Tony has worked in financial services since 2014. He earned his bachelor's degree in business administration from Webster University and his master's in business administration from Washington University in St. Louis. Tony is married to Elise, who also serves in the Air National Guard. Together they have 5 kids and enjoy spending time outdoors together as a family.

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