2006, $15K and taxes

**James** · 07-25-2005, 06:20 AM

Howdy,

I am a military member currently deployed to a "tax free zone". I have my TSP contributions set to the max that I am allowed to this year (10%). Next year I plan to max out my TSP contributions at $15,000 for the year. Making the same contribution every month would have me contributing $1250/month.

But I should still get the first two months of my pay in 2006 tax free. To maximize my tax savings over the year I think that I should not make contributions during those tax free months. Leaving me the last 10 months to contribute to the plan adjusting to $1500/month.

To complicate things even more, while I am over here I earn 2.5 days of "combat leave" per month. This is known as "combat leave" because since they were earned in a tax free zone the pay for those days will be received tax free. I intend on taking about 30 days of leave upon return which will likely spill over 2 different months.

So to maximize my 2006 tax savings on my TSP contributions should be made over those 8 remaining months that I won't receive any tax free pay. Meaning that I'll will contribute $1875/month.

Can I get a sanity check on this logic?
Thanks.

**Birchtree** · 07-25-2005, 10:42 AM

It's always different strokes for different folks. Put your contributions on auto pilot and relax. 4 months out of a career time factor doesn't sound like a lot of time. But the sacrifice is you will miss those months for dollar cost averaging - and over time the opportunity you miss may make a difference. Put as much in as you can to build a power account - someday you can make it grow even more. I'd recommend letting fate rule the day - and please keek your head down. Take care.

Dennis

**pyriel** · 07-25-2005, 04:20 PM

I agree with Birch about 4 months not makinga difference over a career of investment. But if your goal is to maximize tax reduction then you are correct and somewhat incorrect. Being in a tax free zone, you have the ability to go over 15k for next year. In fact, if someone is deployed for the whole year next year, he can put 100% of their income and special pay in TSP (but how is he going to pay his bill?). Why? It is because their pay is 100% tax free. Remember TSP becomes unlimited next year. Cap provided by IRS is limited to taxed income. Since income in the combat zone is not tax, there is no limitation. So dont worry about contributing to TSP and going over 15k (for your situation, at least). You only need to worry about this cap for those tax income you are going to get for the last 8 months you mentioned. :^

For reservist going back to the IDT mode (weekend warrior). Don't forget that when you get back home, you may be able toput 100% of your pay and special pay to TSP as long as you don't exceed 15k.

**James** · 07-25-2005, 04:35 PM

Holy schnikes!

To simplify things if I'm deployed in January and Feb I could put 100% of my base pay, bonus and incentive pay, into the TSP. Then when I start getting taxed on income in March (assuming no combat leave taken) I could contribute $15K more over the next 10 months and not go over the limit?

I am fortunate that I could save up a good portion of money as my house is currently being rented out through January and my bills have been minimized out here to make this a reality.

**TSP@ti2de** · 08-21-2005, 07:41 AM

Someone please clarify this, you're saying that if you are in a tax-free zone, hypothetically you could punt your entire tax-free earnings to TSP? Please advise.

**KathMorgan** · 08-21-2005, 10:28 AM

Unless I've got it totally confused, while you are deployed you can "max out" you TSP by doing 10% of you base pay and up to 100% of all special pays (i.e. FSA, combat pay, haz duty pay, BAQ, BAS, etc) You can only do 10% of you actual base pay. At least until the caps come off next year.

Kathy Morgan EA
H&R Block Master Tax Advisor
Proud Mom of Sgt RT Morgan
1/156 AR BN, Louisiana Army National Guard
currently serving in Baghdad, Iraq
(home is less than 30 days, by the Grace of God)

**rokid** · 08-21-2005, 11:03 AM

I hope your soncomes home safe and sound. I very much admire the men and women willing to serve and put their lives on the line.

**TSP@ti2de** · 09-09-2005, 09:07 AM

Here's the link on that:

http://www.tsp.gov/uniserv/features/chapter16.html

**Rolo** · 09-09-2005, 08:07 PM

Welcome, Kathy!

The TSP limits for military are removed as of Jan 2006 and will only be subject to the IRS 403(b) limitations.

**KathMorgan** · 09-09-2005, 11:43 PM

Thanks for the good thoughts. As of right now it's kind of a good news/bad news thing. He's supposed to be home of Wed or Thur next week. But they are only getting a 3 day pass then off the the Katrina zone they go for an undetermined amount of time. But at least it's not Baghdad.:^

Kathy Morgan EA
H&R Block Master Tax Advisor
Proud Mom of Sgt RT Morgan
1/156 AR BN, Louisiana Army National Guard
currently serving in Baghdad, Iraq

**smine** · 09-10-2005, 01:16 AM

Welcome KM:

Did your facility get any New Orleans transplants? You know the Katrina mess is bad enough. I have a cousin and nephew in the guard down there. At any rate welcome to TSP talk.

**pyriel** · 09-10-2005, 03:44 AM

KathMorgan wrote:

Kathy Morgan EA
H&R Block Master Tax Advisor
Proud Mom of Sgt RT Morgan
1/156 AR BN, Louisiana Army National Guard
currently serving in Baghdad, Iraq

Master Tax Advisor... Hmmm... My kind of woman... I always need tax advices... Welcome to TSPTalk. Your expertise will definitely be appreciated...

P