For High-Investing FERS Employees, It’s Time to Review TSP Investment Rates

Some employees invest at high rates early in the year in order to get money in the TSP sooner and take advantage of potential tax-advantaged growth for longer periods. Image: gopixa/Shutterstock.com
By: FEDweek Staff

This point of the year is a good time for FERS employees who invest in the TSP at high rates to make sure they won’t lose government contributions to their accounts due to hitting the annual investment dollar limit too early.

The standard limit, called the elective deferral limit, is $23,500 in 2025. Further, investors who are—or who will be by the end of the year—age 50 or older during a calendar year may make “catch-up contribution” investments above that limit. Before this year, the same limit applied to all eligible persons but effective in 2025, those age 60, 61, 62, or 63 in a given year have a higher limit, of 150 percent of the standard limit—this year, $11,250 vs. $7,500.

FERS investors should take care to structure their investments so that they can continue investing at least 5 percent of salary, the amount that produces the maximum government contribution, through every pay period of the year. If they hit the dollar cap before that, their own investments will shut off until next year and so will government matching contributions worth up to 4 percent of salary (although the automatic 1 percent of salary government contribution would continue). Once lost, matching contributions can’t be recouped.

Some employees invest at high rates early in the year in order to get money in the TSP sooner and take advantage of potential tax-advantaged growth for longer periods—that is, “front-loading” their investments. Especially those FERS employees who have been doing so might want to examine their situation around now—even if they currently are in unpaid status due to the shutdown—to determine if they should change their investment rate for the remaining pay periods of the year. That can be done directly through the TSP, which is not affected by the shutdown.

There is no similar consideration for CSRS investors, who get no government contributions.

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