Analysis: Payroll tax cut opportunity to put more in TSP

Friday - 2/24/2012, 11:19am EST

Ed Zurndorfer, certified financial planner

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The payroll tax cut extension is now law, and that means changes to new federal employees' benefits. Feds hired after Dec. 12, 2012, will pay 2.3 percent more — a total of 3.1 percent — of their salaries toward their pensions. Employees who return to work for an agency but have less than five years of federal service also are subject to the change.

However, current federal workers are not affected by the pension changes and will continue to pay 0.8 percent of their salaries toward their pensions.

Most FERS and CSRS Offset employees will receive the 2 percent payroll tax cut as part of the plan signed into law Thursday by the President, said certified financial planner Ed Zurndorfer, in an interview The Federal Drive with Tom Temin.

"How should employees take advantage of that 2 percent payroll tax cut? They should put all that money in the Thrift Savings Plan. That's what they should do. They should save more," he said.

Started in 2010, new employees automatically had 3 percent of their post-tax salary put into the TSP. Zurndorfer said to put an additional 2 percent into the TSP would allow the employees to get the maximum agency match of 4 percent. That, in effect, would be "10 percent of their paycheck into the Thrift Savings Plan," he said.

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