You May Have Contributed Too Much to Your TSP in 2021


Editor's Note: This article has been updated with new information provided by the Defense Finance and Accounting Service (DFAS).

Service members who make significant contributions to their Thrift Savings Plan account may end the year with an overcontribution due to a Defense Finance and Accounting Service software glitch. Here's what you need to know if you're in this situation.

How Could I Overcontribute to TSP?

In years past, the DFAS would automatically stop any TSP contributions that exceeded the IRS elective deferral limit for that year. The elective deferral limit is the maximum amount that the employee can contribute to a qualified savings plan in a year under normal circumstances. In 2021, the elective deferral limit is $19,500.

There are two other limits that apply to TSP contributions. One is the annual additions limit, which is the total amount that can be contributed to a TSP account in a year. This includes employer contributions to TSP, and it also includes any contributions made in a tax-exempt combat zone. For 2021 this amount was $58,000.

On top of those two limits is the catch-up limit, which lets taxpayers who are age 50 or above contribute more to their TSP account. The 2021 catch-up limit is $6,500 in 2021, and it applies to the other two limits.

See: TSP Contribution Limits Going Up In 2022

In the past, service members who were age 50 and above had to make two separate elections if they wanted to use the catch-up limit to contribute more to their TSP account. For 2021, DFAS changed the way that those contributions were designated. Instead of making their regular contribution, up to $19,500, and then making a separate set of contributions for the $6,500 catch-up limit, DFAS changed the software to let them contribute the entire $26,000 in one action.

Unfortunately, this somehow removed the $19,500 cap that is used to automatically stop your TSP contributions when you reached that limit. Anyone who had their TSP contributions set to a higher level may have accidentally had too much money withheld from their paychecks, to be sent from DFAS to TSP.

Service members may have their TSP contributions set up this way for a variety of reasons, from the simple fact that military TSP only lets you contribute by percentage of military pay to wanting to max out their account earlier in the year.

DFAS has known about this problem since June, and now they have come up with a solution to this problem.

The DFAS Fix

DFAS has told us that anyone under the age of 50 who contributed more than the authorized amount will automatically have any excess contributions refunded to them. DFAS has said they will issue the refunds in the month following the first month excess contributions were made.  For example, members who first exceeded the elective deferral limit in the December pay period will be automatically refunded the excess contribution by January month-end pay.

Service members turning 50 or older who wish to contribute the extra spillover (or catch-up) amounts to their TSP do not need to do anything; their contributions will continue until the limit of normal plus catch-up contributions is reached. Those who do not wish to make catch-up contributions need to manually adjust or stop their TSP contributions to ensure the proper amount is withheld from their paychecks.

System changes are scheduled to be implemented by March 2022. These changes will systematically prevent military member from contributing more than the elective deferral limit each year.

Have You Overcontributed to TSP?

You can find your year-to-date TSP contributions on your December Leave and Earnings Statement. You want to be sure that you haven't exceeded whichever limit applies to your situation.

Steps to Take If You've Overcontributed

DFAS should automatically refund any excess contributions directly to a service member's paycheck in the month following the overpayment. Keep an eye on your LES and TSP statements to ensure this happens.

Contact DFAS

If you don't see a refund of any over-contributions you can submit a help ticket through DFAS to let them know you've overcontributed. This will help you establish a paper trail that you've made an effort to fix this. You can do this by going to the ask DFAS military pay webpage, scrolling down and filling out the form. You may want to make a copy of the form for your own records.

Check Your TSP Account

December TSP contributions should be sent to TSP around Jan. 4, 2022. Check your TSP account a few days later to see where you stand. If you have overcontributed, you may want to keep an eye on your TSP and DFAS accounts to ensure that they are going to refund your overcontributions before the tax filing deadline.

In January 2022, TSP Form 44, Request for Refund of Excess Employee Contributions will become available on the TSP website. You should not need to fill out this form, but it can't hurt. It must be received by March 12, 2022, to be valid for the 2021 tax year.

Maybe Wait to File Your Tax Returns

If any of your TSP contributions are tax-deferred (traditional, not Roth), you may want to wait until the whole thing gets sorted out before you file your income-tax returns. You may receive an amended W-2 to reflect the correct amount of tax-deferred contributions.

Even though DFAS says this will get sorted out soon,  I would definitely keep an eye on this throughout the year. If you are in the Blended Retirement System, don't forget that your government matching contributions are based on your contribution each month. You don't want to max out your account before the end of the year, or you may miss out on matching funds.

If you're affected by this situation you may want to keep copies of all documentation until your taxes are done.

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