This story has been updated.

Federal employees will be able to invest more in 2013 through their tax-favored retirement savings plan, the IRS has announced.

Due to an inflation adjustment, the dollar limit on investing in the Thrift Savings Plan will rise to $17,500 from this year’s level of $17,000, the second straight year of a $500 increase.

Participants age 50 or older will be allowed to make additional “catch-up” investments of $5,500, the same as in 2012.

 The TSP is a 401(k)-style retirement savings program open to federal employees and uniformed services personnel.

The TSP this year started accepting Roth-style investments, in which money is invested after-tax but is tax-free on withdrawal, as are the associated earnings if certain conditions are met. Under the TSP’s traditional design, investments are made with pre-tax money, which is taxable along with its earnings on withdrawals.

Traditional and Roth investments are combined for purposes of the dollar caps.

The increases also apply to participants in 401(k) and similar employer-sponsored retirement savings plans.

As of the end of September, the TSP was holding investments worth about $326 billion for about 4.6 million federal employees, military personnel and participants who have separated for retirement or other reasons but left their accounts open. About 51,000 participants had nearly $49 million in Roth balances, up from 40,000 and $30 million  in August.
While the TSP started accepting Roth investments in May, most federal employees could not make those investments until July because the payroll provider for the Defense Department and several other large agencies was not ready until then.
The same restriction applied to active duty Marines. Active duty Army, Navy and Air Force personnel could start making Roth investments Oct. 1, while military reserve personnel will become eligible sometime in 2013.