Research conducted by the Federal Retirement Thrift Investment Board (FRTIB) revealed that far too many federal workers were not contributing enough to their Thrift Savings Plan (TSP) to qualify for their 5% agency match.
To resolve the issue, the automatic TSP enrollment for newly-hired FERS workers was raised from 3% to 5% starting on October 1, 2020. If you were hired before this date, your TSP contributions are the same percentage you elected when you set up your TSP account.
Set-It-And-Forget-It Syndrome
Many federal workers make the same mistake when they’re first hired: they set up a TSP employee contribution then they forget about it. If you elected less than 5% at the beginning of your career it’s understandable. You may not have been financially able to contribute more when starting out. If, after raises and promotions, you still haven’t raised your TSP contribution to at least 5%, you’re simply walking away from free money.
“Also known as the automatic agency 1% contribution, you don’t need to make employee contributions to get this agency contribution.”
It Starts With A Non-Elective 1% Contribution
Even if you decided to contribute nothing to your TSP, your agency contribute 1% of your basic pay into to your TSP account each pay period. Also known as the automatic agency 1% contribution, you don’t need to make employee contributions to get this agency contribution.
For example, if your basic pay is $50,000 per year, your agency will contribute $500 per year into your TSP account. Since it’s a non-elective contribution, it’s not deducted from your pay and it doesn’t reduce your income for tax purposes.
How Agency Matching Contributions Work
The first 3% you contribute to your TSP will be matched by your agency, dollar-for-dollar, each pay period. Let’s crunch the numbers using the same example as above. If you contribute 3% of your $50,000 basic annual pay, that works out to $1500 per year plus an additional $1500 dollar-for-dollar match from your agency.
The next 2% of your employee contribution will be matched at 50 cents on the dollar until the agency match reaches 5%. When you do the math based on an annual basic pay of $50,000, you get the $1500 match for the first 3% then a $500 match for the other 2% employee contribution. This is in addition to the automatic 1% of your pay that your agency contributes to your TSP even if you don’t contribute at all.
When retirement is on the horizon, it’s a good idea to connect with an FRC® trained advisor who can help you develop a TSP strategy to ensure you’re taking full advantage of your agency match.
