Thrift Savings Plan officials recently released the 2020 Thrift Savings Plan Contribution Limits. Thrift Savings Plan contribution limits are calculated on an annual basis based on the cost of living indexes and can increase based on rules set by the IRS.
This marks the second year in a row that members are able to contribute more than the previous year. The 2020 TSP contribution limit for employee deferrals is now $19,500, up from $19,000 in 2019 (and $18,500 in 2018).
The catch-up contributions also receive an increase to $6,500 per year. (Catch-up contributions are only available to persons aged 50 and up). This is the first increase for the catchup contribution limit since 2014.
There is also a $1,000 increase in the Max Annual Addition Limit, which increases from $56,000 to $57,000.
Let’s do a deep dive into this topic. While contribution limits seem straightforward on the surface, this is actually a very interesting topic. Certain members may have complicated situations that deserve special attention (multiple TSP accounts, multiple retirement accounts, contributions while deployed, participating in both the Roth and Traditional TSP, etc.).
2020 Thrift Savings Plan Contribution Limits
The 2020 Thrift Savings Plan Contribution Limits are as follows:
Elective Deferral Limit: $19,500
This is the limit employees can defer from their paychecks. It applies to Traditional and Roth TSP accounts (they share the same limit, so you can’t contribute $19,000 to each). This includes your base pay, special pay, and bonuses. To max out your TSP, you would need to contribute $1,625.00 per month from your paychecks. That is very aggressive, but it can be possible for some, depending on your rank / pay grade, and living expenses.
Annual Addition Limit: $57,000
This is the maximum amount you can put into your Thrift Savings Plan from all sources (except catch up contributions – see the section below, this is the $6,500 you can contribute if you are age 50 or over). Deployed military members can exceed the $19,500 annual Elective Deferral Limit through payroll deductions while deployed.
Excess contributions made while deployed count toward the Annual Addition Limit (contributions above $19,500 automatically go into the Traditional TSP). This limit also includes Agency contributions (matching contributions made by the Civil Service, or matching contributions from the military, as part of the Blended Retirement System, starting in 2018).
Catch-up Contribution Limit: $6,500
Members age 50 and over can contribute an additional $6,500 per year to their elective deferral limit (total of $26,000) and Annual Addition Limit ($63,000).
Explanation of Thrift Savings Plan Contribution Limits
The following chart displays the 2020 Thrift Savings Plan contribution limits, with notes about each type of contribution. The combined maximum one can contribute, including all agency matching contributions, contributions from special pay and bonuses, and contributions while deployed, is $57,000 ($63,000 for those who are eligible for catch-up contributions).
|2020 Thrift Savings Plan Limits
||Max Contribution||Internal Revenue Code||Notes|
|Elective Deferral Limit*||$19,500||IRC §402(g)||Applies to combined total of traditional and Roth contributions. For members of the uniformed services, it includes all traditional and Roth contributions from taxable basic pay, incentive pay, special pay, and bonus pay, but does not apply to traditional contributions made from tax-exempt pay earned in a combat zone.|
|Max Annual Addition Limit||$57,000||IRC §415(c)||An additional limit imposed on the total amount of all contributions made on behalf of an employee in a calendar year. This limit is per employer and includes employee contributions (tax-deferred, after-tax, and tax-exempt), Agency/Service Automatic (1%) Contributions, and Matching Contributions. For 415(c) purposes, working for multiple Federal agencies or services in the same year is considered having one employer.|
|Catch-up Contribution Limit||$6,500||IRC §414(v)||The maximum amount of catch-up contributions that can be contributed in a given year by participants age 50 and older. It is separate from the elective deferral and annual addition limit imposed on regular employee contributions.|
Current & Historic Thrift Savings Plan Contribution Limits
|Year||Annual Contribution Limit||Max Catch-Up Contribution Limit||Annual Addition Limit||Annual Addition Limit w/ Catch-Up|
Types of Thrift Savings Plan Contributions
There are three types of TSP contributions:
- Regular Employee Contributions (including automatic enrollment contributions)
- Catch-up Contributions (for participants age 50 or older)
- Annual Addition Limit Contributions
Regular Contributions (Elective Deferral Contributions)
Eligible TSP participants can begin making regular employee contributions at any time. These contributions, also known as Elective Deferral Contribitions, are made from basic pay.
Traditional contributions are made before taxes are withheld and Roth contributions are made after taxes have been paid. Your contribution election will remain in place until you elect to stop or change the contribution amount, reach the contribution limit, or take a Thrift Savings Plan financial hardship withdrawal.
Catch-up contributions are only available to those aged 50 and above. You must elect to make catch-up contributions each calendar year. If you don’t elect to make catch-up contributions each year, they will automatically stop. You can make regular and catch-up contributions at the same time.
If you plan the amounts you contribute carefully, you will maximize both the $19,500 regular contributions and the $6,500 in catch-up contributions during the last pay period of the year. This is much simpler than having to keep track of when your regular TSP contributions will max out, stopping the regular contributions, and then starting catch-up contributions.
In addition, if you are eligible to make catch-up contributions and you are deployed to a designated combat zone, you will not be able to make any traditional catch-up contributions from your tax-exempt pay. However, Roth catch-up contributions from tax-exempt pay are allowed.
Annual Addition Limit Contributions
Annual Addition Limit Contributions include all contributions made on behalf of the employee during the applicable calendar year. This limit includes all employee contributions, as well as employer matching contributions.
The annual addition limit also applies to contributions above the annual Elective Deferral Limit (contributions above $19,500, in 2020) made by service members who are deployed to a tax-exempt zone.
The Internal Revenue Code §415(c) states the annual addition limit is per employer. However, for 415(c) purposes, working for multiple Federal agencies or services in the same year is considered having one employer. (This would apply to members of the Guard/Reserves who are also employed by a federal agency, or those who change jobs in a given calendar year).
Two Thrift Savings Plans – Uniformed Services & Federal Service
There are two separate Thrift Savings Plan accounts – one for military members, and one for those employed by the federal government. It is possible for members to have both accounts. This can even be common for members of the Guard or Reserves who also serve as technicians in the civil service.
These two plans share the same annual contribution limits across both accounts. So it is important to understand how to balance having multiple retirement accounts. See the section below, titled, “How Contribution Limits Are Impacted With Multiple Retirement Accounts.”
Uniformed Services TSP Contributions
The Thrift Savings Plan is available to all military members. Military members are eligible to contribute any whole percentage of basic pay, as long as the annual total of the tax-deferred investment doesn’t exceed the maximum contribution limit. Military members also have the option of contributing any portion of their incentive pay, bonuses, or special pay so long as they contribute a portion of their basic pay.
Roth TSP Contributions for TSP members. Roth Thrift Savings Plan contributions are limited to the $19,500 elective deferral limit. All additional contributions toward the Annual Additions Limit must be made into a Traditional TSP account, even if the contributions come from tax-exempt pay.
Tax-free combat zone contributions. Military members serving in tax-free combat zones are allowed to contribute up to $57,000. This total includes regular deferred contributions, tax-exempt combat zone contributions, and special pay and bonuses.
Note regarding catch-up contributions and tax-free pay: Military members who are receiving tax-exempt pay while serving in an eligible combat zone must make catch-up contributions into a Roth Thrift Savings Plan account.
TSP Federal Agency Contributions
Federal Civil Service members can also participate in the Traditional or Roth TSP. They have the same contribution limits. However, the section above regarding tax-free combat zones does not apply.
Matching TSP Contributions Chart
Members of the uniformed services only receive matching contributions if they participate in the Blended Retirement System. Otherwise, they do not receive matching contributions. FERS Employees are eligible for matching contributions from the government.
Thrift Savings Plan participants who are eligible to receive a matching contribution receive an automatic 1% contribution from the federal government, then a 100% match for the first 3% they contribute, followed by an additional 0.5% match for the next 2% the contribute, bringing the maximum agency contribution to 5%.
Participants can contribute as high of a percentage of their salary as they wish, so long as they don’t exceed total contribution limits, including the catch-up limits allowed for those age 50 and above.
The following chart can be used by military members and Federal Employees to determine the total amount of their contributions including agency match.
How Contribution Limits Are Impacted With Multiple Retirement Accounts
The TSP is similar to a 401k plan, and they share the same annual contribution limit per person. This means if you cannot contribute more than $19,500 ($26,000 with catch-up contributions) across both accounts in any given calendar year.
This doesn’t impact most active duty members or civil service employees with only one job. However, this is very important to note for anyone who transitions to or from the military or civil service in any given year. And it’s important for traditional members of the Guard and Reserves, as they often have another retirement plan through their full-time job.
Be careful! TSP participants should be careful not to exceed their annual contribution limits across whichever retirement accounts they have. The TSP system will not allow you to contribute too much to the TSP. If you do, the TSP will refund you the difference, and reject future contributions through the end of the calendar year. But the TSP doesn’t have insight into your other retirement accounts.
Military TSP + Federal TSP. Many members of the Guard and Reserves are also Technicians and have access to both a military TSP account and a civil service TSP account. They can make contributions to both TSP accounts in the same tax year. However, these accounts share the same annual limit across both accounts. It’s very important not to exceed these contribution limits.
The only time you can go above the annual employee deferral limit is when you are called to active duty and deploy to a tax-exempt zone. At this point, you will be able to contribute up to the Annual Addition Limit shown above ($57,000, or $63,000 with catch-up contributions).
TSP + 401k (or similar retirement account). Again, the TSP and 401k plans share the same annual limit. In theory, it seems like one should be able to contribute up to the Annual Addition Limit if you have contributed to the maximum allowed between your other retirement account and the TSP. But the TSP won’t be able to track this on their own. So you will need to contact them and verify that it is possible, and request they allow it. Again, this is a theory. I have not seen it in practice.
Other Notes about TSP Contributions
The following information should help you determine how to allocate your TSP contributions:
Contributing by a percentage of your pay.
If you elect to contribute a percentage of pay to the TSP and the amount is more than your remaining salary after mandatory deductions (e.g. Federal income tax, state taxes, TSP loan payments, etc.) and other voluntary deductions that are processed before TSP contributions, then the resulting pay will be the amount withheld and contributed to your TSP account.
Contributing by dollar amount.
If you designate a whole dollar amount that is greater than your remaining salary, then no employee contributions will be made for that pay period, and if you are FERS you will not receive Agency Matching Contributions for that pay period.
If this occurs, you will need to lower your contribution level by electing to contribute either a lower percentage or dollar amount. No TSP contributions will be withheld from your pay until your new election is effective. Neither the new election or any matching contributions will be applied retroactively.
The Thrift Savings Plan offers Automatic TSP Contributions for new employees. The military will also have automatic enrollment for members participating in the blended retirement plan.
Roth TSP. Here is more information about the Roth Thrift Savings Plan (TSP).
The Thrift Savings Plan is a great opportunity to save money for retirement and you should take advantage of it if you are eligible to participate. You can read more about the contribution rules at the TSP page.