Next year, federal employees will be able to contribute more to their Thrift Savings Plan (TSP). On November 1, 2024, the IRS announced the 2025 contribution limits for the Thrift Savings Plan (TSP) and other retirement accounts.
2025 Maximum Contribution Limits
In 2025, the contribution limit for your TSP is $23,500 — $500 more than the 2024 limit. The increase also applies to private sector retirement accounts like the 401(k), 403(b) and 457 plans. Catch-up contributions for federal workers between the ages of 50 and 59 years old will remain at $7,500 in 2025.
For feds between the ages of 60 and 63 years old, the 2025 catch-up contribution limit will increase to $11,250 thanks to the SECURE Act 2.0 signed into law in 2022. If you’re also saving money for retirement with an IRA, the 2025 contribution limit will remain at $7,000, and the catch-up contribution limit for those ages 50 and older will remain at $1,000 for 2025.
Is It Time To Start Building A Roth TSP Balance?
If you’re close to retirement, the start of a new year is a good time to consider the Roth TSP. Currently, only around 20% of TSP participants are contributing to a Roth TSP balance while the rest are missing out on the advantages.
Since Roth TSP contributions are deducted from your after-tax earnings, distributions in retirement are tax-free. Add to this, the Roth TSP combines the advantages of a Roth IRA with the TSP by offering a wide selection of investment options for portfolio diversity plus the TSP’s lower management fees.
“Also consider that a Roth TSP may offer a better legacy for your loved ones.”
Unlike the Roth IRA, there are no income restrictions on the Roth TSP. Even better — the SECURE Act 2.0 put an end to Required Minimum Distributions (RMDS) from Roth TSP accounts as of 2024. Also, consider that a Roth TSP may offer a better legacy for your loved ones. When you pass away, your TSP beneficiary is responsible for income taxes owed on your traditional TSP balance. With a Roth TSP, withdrawals made by your named beneficiaries are essentially tax-free.
Are You Contributing Enough For The TSP Agency Match?
If you’re not contributing at least 5% of your pay to earn your TSP agency match, you’re walking away from free money. Contributions to both the Traditional and Roth TSP get the agency match. However, the matching portion for a Roth TSP contribution is deposited into the tax-deferred balance of your Traditional TSP and taxed upon withdrawal.
Connect with an FRC® trained advisor and get started on your TSP withdrawal strategy.