What Happens If You Exceed TSP 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.  

Since the fourth quarter of 2021, DFAS has automated this process, so most TSP over-contributions are now returned automatically rather than requiring a manual request.

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

What happens if you overcontribute 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 myPay ²  to see how much you’ve invested in your TSP so far this calendar year.
  • Check the current TSP Contribution Limits guide for this year’s exact figures, since the IRS adjusts these annually.
• 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 systems.

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 their contributions to ensure they don’t exceed any limits imposed by the IRS.