Federal employees aged 50 or older will be able to contribute thousands more dollars to their Thrift Savings Plan accounts each year, under a bill passed by Congress this week.
President Bush is expected to sign the TSP catch-up contributions bill (H.R. 3340). After he signs the bill, the board that runs the 401k-style TSP will have to issue regulations and modify its computer system before government workers will be able to make the higher contributions. Agencies across government will also have to modify their personnel computer systems to accommodate the change.
"The 'over 50 catch-up contribution' provision in the act will allow workers to make up for years when they were not employed, didn't contribute to their plan, or otherwise weren't able to save," Sen. Daniel Akaka, D-Hawaii, said in a statement. "It is especially beneficial for women who have returned to the workforce after taking time off to raise families."
TSP contributions are pre-tax, so putting away money into TSP accounts also lowers an employee's annual tax bill.
Under normal TSP rules, employees under the Federal Employees Retirement System will be able to contribute up to 13 percent of their paychecks each pay period to the TSP in 2003, up to an annual limit of $12,000. Employees under the Civil Service Retirement System will be able to contribute up to 8 percent per paycheck up to $12,000 for 2003.
Under the TSP catch-up contributions bill, employees aged 50 or older will be able to put $2,000 above the limit into their TSP accounts in 2003. For example, under normal rules, an employee in the Federal Employees Retirement System who makes $50,000 a year would be able to put $6,500 (13 percent of pay) into his TSP account next year. Once the bill is enacted, he will be able to put $8,500 into the account.
The maximum catch-up contribution limit will rise to $3,000 in 2004, $4,000 in 2005, and $5,000 for 2006 and every year after that.
The catch-up contribution bill was the brainchild of Rep. Connie Morella, R-Md., who lost her House seat in the Nov. 5 election. Morella made sure previous legislation accounted for the cost in lost tax revenue of the catch-up bill. She also fought for the bill when it stalled earlier this year over cost projections. The House passed the bill in October.
The bill also reauthorizes the Office of Special Counsel and the Merit Systems Protection Board, and allows employees of the Overseas Private Investment Corporation to participate in the Federal Employees Health Benefits Program.