Guard Against Hitting TSP Dollar Cap

[swsop]

Greetings All,

This time of year is a good point for higher-paid FERS employees
to check to make sure they won't lose government contributions due
to hitting the annual investment dollar cap too early. The annual
TSP investment dollar cap in 2006 is $15,000. Since the lifting
of the old percentage limits on investing, some employees have
chosen to invest at high rates early in the year in order to get
their money in the TSP sooner and take advantage of potential
tax-advantaged growth for longer periods. FERS employees who have
been doing so might want to examine their situation around now.
FERS employees should take care to structure their investments so
that they can continue investing at least 5 percent of salary--the
amount that produces the maximum government contribution--through
every pay period of this year.

If FERS investors hit the dollar cap before the last pay period of
the year, their contributions will shut off until 2007 and so will
government matching contributions (although the automatic 1 percent
of salary government contribution for FERS employees would continue).
Once lost, matching contributions can't be recouped. There is no
similar consideration for CSRS investors, who get no government
contributions in any event.

SWSOP

 

[SkyPilot]

I always had the question; does the Agency Matching figure into my total contribution? The Answer: It does not...

From the TSP Factsheet regarding contribution limits....

What are elective deferrals?

Elective deferrals are tax-deferred amounts that you choose to contribute to a planinstead of receiving those amounts as pay. Because such contributions are
tax de-ferred, they are not included in your tax-able gross income for the year in whichthey are contributed. Your employer makesthe contributions on your behalf under a qualified cash or deferred arrangement(as defined in section 401(k) of the Inter-nal Revenue Code (Tax Code)).For TSP participants, employee contribu-tions are considered to be elective defer-rals.

Elective deferrals do not includeAgency Automatic (1%) or AgencyMatching Contributions because these contributions are not considered part ofyour pay.

For members of the uni-formed services, they do not includecontributions from tax-exempt payearned in a combat zone.What is the annual limit on elec-tive deferrals?Section 402 of the Tax Code limits theamount of income that you may elect todefer under all cash or deferred arrange-ments during a tax year. (For most em-ployees, a tax year is January 1 throughDecember 31.)