Agency_Automatic_Contributions

Key Takeaways

• Federal employees receive a 1% automatic contribution to their TSP from their agency each pay period.
• Employees don't need to contribute to their TSP to receive the Agency Automatic Contributions.
• Contributions become vested after three years, or two years for certain government positions.
• TSPs are similar to 401(k) plans but designed for federal employees and uniformed services.
• Employees can choose between traditional tax-deferred or Roth after-tax contribution options in their TSPs.

What Are Agency Automatic Contributions?

Agency automatic contributions are part of a federal employee's retirement benefits plan. These contributions are a key feature of the thrift savings plan (TSP) and do not require employee contributions to be activated. This is a significant benefit for federal employees because it provides a 1% boost to their retirement savings without requiring their direct input or an equal contribution.

This feature is most commonly found in 401(k) plans, but it can also be included in the following types of plans that permit employees to make elective contributions: 403(b) plans, 457(b) plans, SARSEPs, and SIMPLE IRA plans.

Understanding Agency Automatic Contributions

Agency automatic contributions are not added to taxable income for the current year's income taxes, reducing an employee’s wages by a default percentage. However, these automatic contributions are subject to vesting parameters. Employees are entitled to keep them—and any earnings they accrue in the future—after working three years in their jobs.1

Congressional and certain non-career government positions become vested after two years of service. If you leave federal service before satisfying the vesting requirement for your agency, automatic contributions and the earnings on them will be forfeited to the TSP. If you die during your service to the government, you will automatically be considered vested in your TSP account.

Agency Automatic Contribution Plan: A Practical Example

For example, if a federal employee elects to make a 5% contribution toward their thrift savings plan, they will receive an equivalent amount from the government (assuming that the 1% contribution automatically gained from the agency automatic contributions is added to the 4% gained from the agency matching contributions.)

How a TSP Works

A thrift savings plan (TSP) is a type of defined-contribution retirement investment program open to federal employees and members of the uniformed services, including the Ready Reserve. TSP benefits can include automatic payroll contributions and agency matching contributions. Participants can choose to make tax-deferred contributions into a traditional TSP, which means the money that flows into the account will not be taxed until it is withdrawn.2

However, participants may also choose to invest in a Roth TSP. This option allows employees to make after-tax contributions into their plans so that they'll owe nothing in taxes when they withdraw the money after retiring.

Employees new to federal employment can rollover qualified 401(k) and individual retirement account (IRA) assets into a TSP and vice versa if they move to the private sector.

Starting in the year you turn 50, you may be eligible to make catch-up contributions to your TSP account in addition to your regular employee contributions.