TSP contribution limits will increase again next year, consultants predict

Participants in the federal government’s 401(k)-style retirement savings program may once again be able to contribute more toward their retirement next year, according to consultants’ projections.

Mercer, an HR and financial services consulting firm, announced last week that it believes that the annual contribution limit for 401(k) and related retirement plans, including the federal government’s Thrift Savings Plan, will increase by $500 from $22,500 in 2023 to $23,000 next year.

If true, it would mark the third straight year that the contribution cap would increase, and would amount to a $3,500 jump since 2020.

The Internal Revenue Service announces contribution limits to retirement plans in the fall. Changes in limits are calculated based on the annual increase in the Consumer Price Index for All Urban Consumers, or CPI-U, as measured in September each year.

On its website, Mercer said it based its projections on the July CPI-U data, along with estimates for August and September. The Bureau of Labor Statistics this month said that the price index increased 3.2% between July 2022 and last month.

Although Mercer projected that most retirement program caps, including the defined benefit annuity and the annual addition limit—the total amount that can be contributed to a 401(k) by both employer and employee—will increase next year, catch-up contributions would remain flat under the firm’s model. According to the firm’s projections, catch-up contributions, an additional avenue by which 401(k) and TSP participants may make extra contributions provided they are at least 50 years old, will be capped at $7,500 in 2024.