Retirement plans can be more difficult to understand than you might think. That is certainly the case when you are funding both a Thrift Savings Plan (TSP) and a solo 401(k) plan in the same year.
It may be surprising to learn that if you are contributing to a solo 401(k) alongside a TSP at your primary job, you might encounter difficulties determining your maximum annual contribution for each plan.
This post explains how contributing to these two plans affects contribution levels. Let’s get started.
Table of contents
Background
We work with clients who contribute to various retirement plans. It’s not uncommon for them to participate in multiple company plans in the same year.
Many of our clients are physicians or medical professionals who might work at a hospital or clinic during the day and also work as an independent contractor in their spare time. In such instances, they might max out a TSP while still look to max fund a 401(k) or Mega Backdoor Roth.
This scenario often raises questions about contributing to multiple plans. Most defined contribution plans share the same employee deferral limits and annual contribution limits, but navigating the combination of these plans can be challenging.
Before discussing the rules for combining plans, it’s important to briefly explain what a TSP is. I won’t cover 401(k) rules here, as I assume you are already familiar with them.
What is a Thrift Savings Plan (TSP)?
The Thrift Savings Plan (TSP) is a retirement savings plan for federal employees and military personnel. It operates like a 401(k) plan, offering tax-deferred contributions. Participants can contribute pre-tax or after-tax (Roth) income to their TSP accounts.
The TSP offers various investment funds tailored to different risk levels and financial goals. Funds include options like government securities, bonds, and stock indexes. Participants can choose their fund allocation based on their preferences and risk tolerance.
Contributions to the TSP are often matched by the federal government for eligible employees. These matches significantly boost retirement savings over time. The TSP also provides flexible withdrawal options during retirement to suit different needs.
You can find of more about TSPs here and here.
Employee Deferral and Annual Contribution Limits
401(k)and TSPs are both considered defined contribution plans. They actually have the same annual contribution limits under the Internal Revenue Code. The contributions are divided into two limits:
Use EMPARION PLANS on
- Employee deferral limits (covered under IRC 402(g))
- Annual contribution limits (covered under IRC 415(c))
The funding limits are detailed in the table below:
| 401(k) Contribution Limit for 2025 | Amount |
|---|---|
| Deferral for under age 50 | $23,500 |
| Deferral for age 50+ | $31,000 |
| Maximum for under age 50 | $70,000 |
| Maximum for age 50+ | $77,500 |
Because both plans share the same deferral limits, if you make the employee deferral through one plan, you cannot do it on the other plan. You are stuck with the same overall deferral limits of $23,500.
But what about the overall additions limit? Generally, you are not required to aggregate the annual contribution (or additions) limits if you contribute to both a TSP and 401(k) plan. The annual addition limit of $70,000 is applicable to each plan.
For example, if you contributed $70,000 to your TSP, you could typically contribute up to $70,000 to your 401(k), even if you are not able to make an employee deferral.
This allows you to benefit from government contributions to the TSP without limiting the overall 401(k) limit. It’s a great option!
TSP & 401(k) Combo Example
A 43-year-old radiologist works at a non-profit hospital. He contributed $21,000 to the hospital TSP and the hospital made a $3,000 employer contribution.
The radiologist also has self-employment income from reviewing charts at home. This side income is taxed as a sole proprietorship. The net business profit (as filed on Schedule C of his individual tax return) was $300,000. He wants to max out his employee deferral to his solo 401(k) and also plans on making a $60,000 contribution to his solo 401(k) profit-sharing.
Is a Cash Balance or Defined Benefit Plan Right For You?
Because the TSP employee deferral contributions are combined (or aggregated) with deferrals made to a 401(k) plan, he is able to make the following contributions:
| Type | TSP | 401(k) | Total |
|---|---|---|---|
| Employee Deferral | $21,000 | $2,500 | $23,500 |
| Employer Contribution | $3,000 | $60,000 | $63,000 |
| Total | $24,000 | $62,500 | $86,500 |
Final Thoughts
TSP’s can be great plans for government employees. But because they’re defined contribution plans, you need to keep track of deferral limits and annual limits.
Remember that deferrals are per person and per year, so you cannot make the same deferral contribution to both plans. Make sure you discuss these issues with your plan administrator or CPA.
