The amount that employees of the federal government and members of the military can contribute to a Thrift Savings Plan for 2021 has remained the same as the previous year. Active military members in combat zones have a chance to save even more.
2021 Thrift Savings Plan Contribution Limits
The maximum amount you can contribute to a TSP account for this year is $19,500. If you're 50 or older, your plan may allow you to contribute an additional $6,500 as a “catch-up” contribution, bringing your 2021 TSP contribution total to $26,000. (These amounts are the same as the limits in 2020.)
Active military members who are deployed in combat zones and receive tax-free income can salt away even more – up to $58,000 in the TSP in 2021. This amount increased $1,000 from 2020.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Retirement Benefits of the Thrift Savings Plan
Similar to a traditional 401(k) retirement savings plan, pretax contributions to a TSP account lower your taxable income, while contributions and earnings grow tax-sheltered until you withdraw them. Your withdrawals will be taxed as ordinary income. Note, however, that if you pull money out before age 59 1/2, you face a 10% early withdrawal penalty on top of taxes.
Another TSP option: You can make after-tax Roth contributions, which don't give you a tax break now, but the money can be withdrawn tax-free in retirement. For the earnings in your contributions to be tax-free, you must have contributed to the Roth for at least five years and be at least age 59 1/2.
The Thrift Savings Plan has six investment options, including the lifecycle fund series introduced in 2005. The G fund invests in government securities; the F fund is composed of bonds; the C fund holds large-company stocks; the S fund invests in small-company stocks; and the I fund invests internationally. The lifecycle funds (L funds) are similar to target-date funds in traditional 401(k) accounts. They invest in the other five funds but gradually become more conservative as employees approach retirement.
If you can withstand some ups and downs and your retirement is far off, you could invest more in the C fund, which tracks Standard & Poor's 500 stock index. Or if you're looking for a more set-it-and-forget-it approach, the lifecycle fund with the name closest to the year you expect to retire could be the best option.
An important savings tip for civilian federal employees: Don't miss out on the TSP match. The government automatically contributes 1% of their pay into the plan. The first 3% of pay they contribute will be matched dollar-for-dollar by the government. The next 2% of salary they add to the plan will be matched 50 cents on the dollar.
A Big Change to Military Pensions
Many service members who joined the military between 2006 and 2017 had a critical pension decision to make at the end of 2018. They could've chosen to stick with their old retirement system, which after 20 years of service would entitle them to a pension worth half their base pay. Or they could've taken a smaller pension—worth 40% of base pay if they stay for 20 years—and receive a government match of up to 5% in their TSP accounts. Those joining the military in 2018 and thereafter were automatically enrolled in the blended retirement system, which is more beneficial for those who don't plan to stay in the military for at least 20 years.
"The Thrift Savings Plan is a big key to start out on the right foot financially," says Josh Andrews, a certified financial planner who is director of military advice for USAA (and a former Air Force pilot). "It's low-cost and easy to set up."
Andrews suggests that military members put 10% of their basic pay into their Thrift Savings Plan accounts. If that's not feasible, he says to start small and gradually increase contributions, particularly after pay raises.
Don't forget that the Thrift Savings Plan is a supplement to any government pension you may receive and Social Security. The more you save now, the more you'll have in retirement.
-
Premium Tax Credit: Are You Eligible For This Health Insurance Tax Break?Tax Credits The tax credit can help qualifying individuals pay for coverage from the Affordable Care Act’s health insurance marketplace.
-
Winners and Losers of Fed Rate CutsNavigating interest-rate changes can seem daunting, but these areas of the fixed-income market could perform better (or worse) than others.
-
457 Plan Contribution Limits for 2025Retirement plans There are higher 457 plan contribution limits for state and local government workers in 2025 than in 2024.
-
What Does Medicare Not Cover? Seven Things You Should KnowHealthy Living on a Budget Medicare Part A and Part B leave gaps in your healthcare coverage. But Medicare Advantage has problems, too.
-
13 Smart Estate Planning Movesretirement Follow this estate planning checklist for you (and your heirs) to hold on to more of your hard-earned money.
-
Medicare Basics: 11 Things You Need to KnowMedicare There's Medicare Part A, Part B, Part D, Medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare — and much more.
-
Six of the Worst Assets to Inheritinheritance Leaving these assets to your loved ones may be more trouble than it’s worth. Here's how to avoid adding to their grief after you're gone.
-
SEP IRA Contribution Limits for 2024 and 2025SEP IRA A good option for small business owners, SEP IRAs allow individual annual contributions of as much as $69,000 in 2024 and $70,000 in 2025..
-
Roth IRA Contribution Limits for 2024 and 2025Roth IRAs Roth IRA contribution limits have gone up. Here's what you need to know.
-
SIMPLE IRA Contribution Limits for 2024 and 2025simple IRA The SIMPLE IRA contribution limit increased by $500 for 2025. Workers at small businesses can contribute up to $16,500 or $20,000 if 50 or over and $21,750 if 60-63.
