DEFINITION of 'Agency Matching Contributions'

Agency matching contributions are contributions to a Thrift Savings Plan (TSP) held by federal government employees. Employees of the federal government are eligible to receive contributions to their TSP from the agency for which they work.

A TSP, established by Congress in the Federal Employees' Retirement System Act of 1986, offers similar savings and tax benefits provided by private corporations to employees’ 401(k) plans. The amount government employees receive is based on how they have saved and earned over their course of employment.

BREAKING DOWN 'Agency Matching Contributions'

Through agency matching contributions, an agency can match 100% of an individual's contributions up to the initial 3% of his or her pay and a contribution of $0.50 for every dollar from the next subsequent 2% of pay used toward contributing to the thrift savings plan.

For example, a federal government employee working for the Department of Labor earns $1,500 each pay period and contributes 5% (or $75) into the thrift savings plan. The Department of Labor will then contribute a total of $60 (or 3% of $1,500 + (0.5 x 2%) of $1,500) toward his retirement in additional to his $75, which creates a total contribution per pay period of $135. After 5% of a salary, the agency won't match any additional contributions.

A further benefit comes from the fact that any matching contribution is not considered taxable income nor is it deductible the year it was made. However, even if you made your contributions to a Roth TSP, the matching contributions go into a traditional TSP plan. As a result, distributions of matching contributions, and the earnings on those contributions, are taxable.

Although you cannot access the contributions you’ve made to your TSP until a certain period of time has passed — usually two or three years, matching funds are not subject to vesting. Federal government employees that are able to contribute to a thrift savings plan should take advantage of the agency matching contribution.

  1. Employee Contribution Plan

    An employee contribution plan is an employer-sponsored savings ...
  2. Retirement Contribution

    A retirement contribution is a payment into to a retirement plan, ...
  3. Annual Addition

    The annual addition is the total dollar amount contributed in ...
  4. National Insurance Contributions ...

    National Insurance Contributions are payments made by employees ...
  5. After-Tax Contribution

    An after-tax contribution is the contribution made to any designated ...
  6. Tax-Sheltered Annuity

    A tax-sheltered annuity allows an employee to make pretax contributions ...
Related Articles
  1. Retirement

    How 401(k) Matching Works

    Find out how employer matching of your 401(k) contributions works, including how employer contributions are calculated and annual contribution limits.
  2. Retirement

    Thrift Savings Plan Rollovers: The Pros and Cons

    Is rolling over a Thrift Savings Plan into an IRA the right move? Here's what to consider.
  3. Retirement

    It’s Never Too Late to Contribute to Your 401(k)

    Find out why it is never the wrong time to start contributing to a 401(k), even in your late 30s, 40s or 50s; discover how to maximize your savings at any age.
  4. Retirement

    What Is a Good 401(k) Match?

    The most common employer match is 50 cents on the dollar of up to 6% of your salary. In most cases you should contribute enough to get the maximum match.
  5. Retirement

    5 Key Features of 401(k) Plans

    Understanding your 401(k) options and making the right decisions can have a big impact on your retirement savings.
  6. Retirement

    What Is the Federal Employees Retirement System (FERS) and How Does It Work?

    If you work in the public sector or plan to, FERS ( Federal Employees Retirement System) is an acronym you will soon know well.
  7. Investing

    Why High Income Workers Should Be Maxing Out Their 401(k)s in 2017

    If you're pulling in a bigger salary, there are two important reasons to consider making the most of your 401(k) in the new year.
  8. Retirement

    Retirement Savings Tools I: Employer Savings Plans

    There are a variety of employer savings plans that can offer multiple routes to saving for retirement.
Trading Center