A software glitch caused by a change to how the Defense Finance and Accounting Service (DFAS) allows users to calculate Thrift Savings Plan (TSP) contributions means users under 50 years old could contribute too much to their accounts this year without realizing it.
In the past, the common wisdom around TSP savings has been, "Don't worry about the contribution limits. The Defense Finance and Accounting Service will curtail your contributions when you reach the limit." And that was generally true -- until now.
Contributions to employer-sponsored, tax-advantaged retirement accounts, such as a 401(k) and TSP plan, are limited each year. The elective deferral limit, often called the regular limit, applies to most situations (except combat zone service, which has a separate limit).
The elective deferral limit for 2021 is $19,500. There's an additional contribution available to people ages 50 and older called the "catch-up contribution." For 2021, the catch-up limit is $6,500 per year. That means that while people ages 50 and over can contribute $26,000 to their TSP account in 2021, folks under 50 have to follow the $19,500 limit unless they have tax-free income from service in a designated combat zone.
As of December 2019, almost 6 million people were contributing to a TSP, according to DFAS, with more than 3 million contributing via automatic payroll deductions.
In January 2021, DFAS changed the way that service members elect regular and catch-up contributions. Instead of designating them as two separate contributions, service members can now designate just one percentage to reach both limits. It was assumed that those contributions would stop automatically when they reached the appropriate limit, as they did in previous years.
However, it appears that the software change didn't reflect that catch-up contributions are only available to service members ages 50 and above. Many service members under age 50 reported via social media that their contributions did not stop when they reached the $19,500 limit and that TSP contributions have continued to be deducted from their pay account.
Officials with DFAS said they are tracking those who inadvertently contribute beyond the limit and “will return the excess TSP contributions back to those members,” a spokesperson said in an email to Military.com.
In addition, some commands are notifying their service members that this problem is occurring. For example, a mass email from the finance office to the Ramstein community in Germany said: "Due to a programming change in the TSP Catch-up program, there are no longer separate caps of the $19,500 for normal TSP and $6,500 for the TSP Catch-up. As a result, the TSP limit has been changed to $26,000 erroneously." It further states: "A permanent fix from TSP and DFAS should be implemented at the end of October."
A DFAS spokesperson confirmed that the system upgrades are slated for this fall.
While this will get sorted out eventually, you may have the ability to prevent the problem ahead of time by adjusting your contribution percentages. It is too late to make the change for June, but you can adjust contributions for July and subsequent months to avoid exceeding the elective deferral limit. It's a little tough when your goal is to reach the limit, because TSP contributions are designated as a percentage of pay, but a little math can help you get close without going over.
Side note: If you are in the Blended Retirement System, keep in mind that the government matching funds are based on monthly contributions, not annually. If you max out your TSP before December, you'll miss out on the government match for the months that you don't make a contribution.
If you check your June leave and earnings statement and see that you've overcontributed for 2021, you have two options. You can wait and let TSP and DFAS sort this out themselves, or you can be proactive and reach out to your finance office and DFAS to start the process. I recommend that you take the steps to document and report this error to everyone possible. That may help you get your own situation sorted out quicker, but it also may help push for a bigger resolution for everyone impacted.
