I understand that you have probably heard about 401k which happens to be a qualified retirement plan. One has to be an eligible employee of a given company to get the opportunity to save or invest for his/her retirement. This saving or investment plan doesn’t however work for the federal employees or those working in the military. That doesn’t mean that they can’t make contributions to their retirements. The solution I’m talking about in this case is the Thrift Savings Plan, also commonly referred to as Tsp.
With about $5 billion in assets, Tsp turns out to be the largest contribution plan globally. The other reason to trust in this plan is based on the fact that about 89% of the people that have resorted to it have expressed great satisfaction.
Are you looking forward to investing here? The rule of thumb is to choose the right funds and invest consistently. Asides from that, it is a good thing to learn about the TSP contribution limits. The figures vary from year to year, but the one for 2020 is 19, 500 per person. On top of that, any federal employees aged 50 and over are allowed to make a catch-up contribution of about $6,500 per year.
Who qualifies to make the TSP contributions?
This is a pretty common question, especially for the brand new federal employees. Eligibility matters, and in this case you must be a federal government employee or working with the military. In most of the cases, about 3% of your basic pay is slashed from your paycheck every time. That gets added to your tsp contributions.
Some people would like to know about the tsp maximum contributions. In such a case, you should consult with your benefits office to get more information. Where do you stand right now? Are you that employee that has been automatically enrolled? In that case, you enjoy the freedom to increase your contributions by about 5% of your salary. I must say that it depends on what you want, but most peopled 3wish to hot their tsp maximum contributions. Do what you must do, provided you are operating within the set tsp contribution limits.
The 2020 tsp contribution limits on the rise
Reports show the tsp contribution limits moving a notch higher. That is according to the Internal Revenue Service which considers inflation and the cost of living adjustment in increasing the maximum annual limit figures. This isn’t a selective move because it caters to all employees incorporated in the federal government’s Thrift Savings Plan. The others here included the 401(k), 457, and the 403(b) plans. Asides from that, the limits apply to both the Roth contributions and tax-deferred combined.
- The tsp maximum contributions are such that each employee has a leeway to pay about $19, 500 for 2020. This figure beats that one of 2019 by a margin of $500.
- Any employee aged 50 and above is eligible for an amount of $6,500 in the form of additional catch-up contributions. This figure beats that one of 2019 by $500.
- Those benefiting from the tax-exempt pay and belonging to the uniformed services have a reason to smile. That is because the contributions made from their pay won’t be taxed. There is a condition in line with all the contributions for all kinds of pay. The figures must not surpass $57,000 per year.
- The employee compensation limit in line with the TSP contribution calculations stands at $285,000. This figure beats that of 2019 by $5,000.
Focusing on the types of contributions
The tax-exempt Roth TSP and tax-deferred traditional TSP happen to be the two main types of contributions. But what exactly are they?
The Tax-deferred TSP
This is the typical way that most of the federal employees traverse. In this regard, I’m talking about those tax-deductible contributions that they make. The good thing with trudging this road is that the tax bill for the current year is reduced by a given margin. That implies that your investments will scale higher based on a tax-deferred basis. In some other words, you only get to deal with the state and the federal taxes at that money you choose to withdraw your savings.
In this case, you need to be familiar with the term pretax. This concept implies that you will pay all the state and deferred taxes before you start making contributions. One of the merits of walking down this path is the fact that the retirement savings get to increase on a tax-free basis.
Allowing your money to accumulate until retirement is a great move! That is in the sense that you get to withdraw your gain tax-free. This is a working strategy especially for the workers in the low tax bracket and professionals.
Matters haven’t changed in 2020 when it comes to the annual Individual retirement account (IRA) contributions. That is considering that they still stand at a figure of about $6000.
Financial experts and analysts understand the essence of understanding the tsp contribution limits and the tsp maximum contributions from a wider context of meaning. That is the reason they will advise you to check these out before making any move.
An outlook at the 2020 TSP contribution limits
How well do you know the tsp maximum contributions? Or either, what are your tsp contribution limits? Answering these questions effectively could mean a great transformation of your life. The IRS has made a pronouncement of the 2020 contribution limits. Check them out below.
|Limit Name||IRC||Limit 2019||Limit 2020|
|Elective Deferral Limit||§ 402 (G)||$19000.00||$19500.00|
|Catch-up Contribution Limit||§ 404 (V)||$6000.00||$6500.00|
|Annual Addition Limit||§ 415 (C)||$56000.00||$57000.00|
What is the essence of learning and understanding these limits? The good thing about having this kind of knowledge is that you get to determine the actual amount of contributions that you are free to make to the individual Thrift Savings Plan (TSP) accounts. The guidelines provide that all the TSP contributions be made in conformity to the pay date.