TSP Contribution Limits Are Increasing for 2020

November 14, 2019

This article by Jim Absher first appeared on Military.com, the premier resource for the military and veteran community.

The IRS has announced that the maximum amount of money you can contribute to retirement savings plans like the Thrift Savings Plan (TSP) will increase in 2020.

The increases, while modest, can help you boost your tax-deferred or tax-free retirement nest egg and save more money now for later in life. The new maximum contribution rates in 2020 will be:

$19,500 for regular TSP or 401(k) contributions (up from $19,000 in 2019)
$6,500 for catch-up contributions for those 50 and over (up from $6,000 in 2019)
$57,000 annual limit for tax-free combat zone pay (up from $56,000 in 2019)

Individual Retirement Account (IRA) holders will have the same maximum contribution amounts in 2020 as they did in 2019: $6,000 for regular contributions and $1,000 for catch-up contributions.

The higher contribution limits for the TSP mean that, if you want to contribute the maximum amount each month, you will need to increase your monthly withholding to at least $1,625, or $812.50 each payday.

Of course, you can withhold nothing and put the entire $19,500 in at a later date. But if you do that, you lose the Defense Department's 5% match if you are under the Blended Retirement System. You should be contributing at least 5% of your base pay each payday to get the matching funds from the DoD. If you don't, you are basically throwing away free money.

You can also change the withholding percentage through the myPay website at any time. That means you can keep it at 5% and then increase it if you deploy or get a bonus.

If you want your withholding percentages to be effective for the first payday of 2020, you must make the change in myPay before mid-December. The Defense Finance and Accounting Service and myPay usually require about three weeks to make any changes to your TSP withholding.