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Federal Eye
Posted at 11:33 AM ET, 10/20/2011

Investment limit for Thrift Savings Plan to rise, IRS says

The investment limit in the Thrift Savings Plan, the retirement savings program for federal employees, will increase in 2012 for the first time since 2009, the IRS announced Thursday. Employees will now be able to contribute up to $17,000 to the plan.

The same increase will apply to 401(k) and similar tax-advantage plans, and reflects the effects of an inflation-related adjustment. The current “elective deferral limit” is $16,500.

According to the latest data available -- through 2008 -- about seven percent of federal employees invest at the maximum rate.

A separate limit for “catch-up” contributions, which are additional investments allowed for investors who are age 50 or older during the investment year, will remain unchanged at $5,500.

The TSP is open to federal and postal employees and uniformed military personnel. Nearly 2.6 million active employees and about 700,000 military personnel make pre-tax investments in the plan from their paychecks. The investments and their earnings are taxable when withdrawn, typically after retirement.

About another 1.2 million people who have separated from government service for retirement or other reasons have kept their accounts open, but they may no longer make additional investments.

Most participants are under the Federal Employees Retirement System. They receive an automatic employer contribution to their accounts equal to one percent of salary. They also are eligible for an additional employer contribution of up to four percent of salary by investing their own money. Employees under the Civil Service Retirement System and military personnel do not receive a government contribution.

The TSP plans to offer a so-called Roth option in mid-2012 in which money is invested after taxes but is withdrawn along with its earnings tax-free. The plan is similar to the Roth IRA. Investors will be able to put money into the Roth account, the traditional account or both, but the combined investment will have to stay within the dollar limit.

By  |  11:33 AM ET, 10/20/2011

 
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