Next year, many of the highest-paid federal workers--from career executives to members of Congress--will be able to invest as much as $10,500 of their pay in the tax-deferred thrift savings plan. Currently, the limit on individual contributions to 401(k) plans is $10,000, for everyone.

The limit of $10,500 for next year has just been approved by the Internal Revenue Service, which revisits the maximum individual contribution each year based on inflation. The $10,000 limit has been in effect for two years.

Under the federal thrift savings plan, workers under the Federal Employees Retirement System can contribute up to 10 percent of salary, subject to the IRS limit. Those who put in at least 5 percent get a 5 percent match from the government, including an automatic 1 percent contribution given to all FERS workers. Those who contribute nothing still get the 1 percent agency contribution.

Most federal workers are now under FERS. But only about 10,000 of the government's 2.6 million employees--some elected or appointed officials--make enough ($105,000 a year) to hit the new ceiling.

Employees under the older Civil Service Retirement System (nearly everybody hired before 1984) are limited to a 5 percent contribution to the savings plan--without any government match.

The new ceiling doesn't apply to agency contributions. For example, someone making $130,000 next year under FERS would be able to contribute the maximum $10,500 to the thrift plan. In addition, that employee would be eligible for an additional $6,500--the full 5 percent of salary--in a matching contribution from the government.

Legislation that would have allowed all employees--regardless of salary or pension plan--to contribute up to $10,000 this year ran into opposition from the White House. Rep. Constance A. Morella (R-Md.) proposed letting any federal worker contribute the IRS maximum. The Clinton administration objected because of its cost (in lost short-term tax revenue) and because it would benefit higher-income workers more than lower-income workers.

But the plan was popular with many lower-paid federal workers who said they would love the opportunity to salt away more money toward retirement on a tax-deferred basis. The $10,000-for-all proposal will be revived next year.

December vs. January Retirement

The fact that Jan. 1 is the end of a pay period (and falls on a Saturday) has confused many federal workers trying to figure out the best date to retire. This year, for most federal employees, that date is Dec. 31, according to Tammy Flanagan. She is with the Rockville-based National Institute of Transition Planning. Even though the Office of Personnel Management agrees with her, some federal workers are still confused. This is how she explains it:

"CSRS employees who retire January 1, 2000 (Saturday) instead of December 31 (Friday) would have their retirement begin on Jan. 2. Retirement checks are based on a 30-day month, so the first check would be payment for [29 days] instead of a full month. If a retirement was $3,000 per month, then one day would be worth $100. Not a major loss, but why take it if you can get the full benefit by retiring on the 31st.

"FERS employees who retire January 1, 2000, instead of December 31 would lose the whole January retirement check, because FERS benefits start on the first day of the month following the retirement date. It is usually preferable for a FERS employee to retire on the last day of the month, so that they would be paid for the month they retire (salary) and the next month would [receive] a retirement benefit (annuity)."

". . . December 31 is the ultimate best date for 1999 retirements . . . especially if the employee is cashing in a big lump-sum [annual] leave check."

Retiring on Dec. 31 will allow workers to carry over the maximum amount of annual leave. And they still will be paid for the unused leave time at next year's higher rate, reflecting a 4.8 percent average pay raise.

Federal benefits expert John Elliott agrees that Dec. 31 is the best retirement date for most employees. But he says there are some exceptions:

". . . There are a few CSRS employees [who] could profit by retiring on [Jan. 1], namely those who would, by hanging on an extra day, add one month to their annuity computation."

He says another group should consider retiring on Jan. 1, instead of Dec. 31: people born in 1945. "If you leave government in the year you turn 55, you can exercise all of your withdrawal options from the Thrift Savings Plan without paying a 10 percent tax penalty. . . . Leave the year before you turn 55, and you are limited in what you can do to avoid the 10 percent tax penalty."

The fact that the pay period ends Jan. 1 shouldn't stop workers--who work a regular Monday through Friday shift--from retiring Dec. 31, experts say.

Bottom line: Dec. 31 is the best day for the vast majority of would-be retirees.

Mike Causey's e-mail address is