Thread: TSP max (scratching my head)

Originally Posted by pyriel

Ladies and Gents,
Need your help. I'll probably be deploying soon and need advices. So far, reading materials are not helping.

When deployed we are able to max TSP 44k
When not deployed we are able to max TSP 15k.
I know that there are other rules but lets assume that I fit in this category.

Now, If I am in theater for June 07 through May 08, How much can I contribute to TSP for 07 and 08?

Is it 15K (for Jan-May 07) since my pay is taxable AND 44k (Jun-Dec 07) Since this my pay is non tax. All the materials I read seems to separate the two. I would like to do the same thing for 08.

If this is possible then I would be able to put 59k for TSP for 07 and 08. Can somebody help me with this? Please provide reading materials for me to research. IRS reading materials are not that concrete within this subject as well.

***Thanks a bunch***

Pyriel,
your question has been up here for a month, looks like no one here (including myself) knows the answer. According to the TSP.GOV current info page:

Employee Contributions — Beginning in 2006, there are no longer any percentage limits on employee contributions to the TSP. TSP contributions will be limited only by the restrictions imposed by the Internal Revenue Code.

So TSP does not limit us, only the IRS.

Originally Posted by Gilligan

Pyriel,
your question has been up here for a month, looks like no one here (including myself) knows the answer. According to the TSP.GOV current info page:

Employee Contributions — Beginning in 2006, there are no longer any percentage limits on employee contributions to the TSP. TSP contributions will be limited only by the restrictions imposed by the Internal Revenue Code.

So TSP does not limit us, only the IRS.

I actually found the answer but didn't have a chance to post it here.
IRS dictates that 44k is the max you can contribute at any given year that an individual is deployed. They didn't say whether the individual has to be deployed for a whole calendar year. As we know, not all deployment starts in January. Some of them starts in June. So lets take a look at this scenario on how one can maximize tax savings and maximizing their TSP contribution.

1. From Jan-May = Before the SM deploys, he can contribute 15k max into TSP.
2. From Jun-Dec = Since he is now deployed, he can contribute an additional 34k while in theater.

The following year, he can contribute the following:
3. From Jan-May = Contribute another 34k.
4. From Jun-Dec = Contribute another 15k once he is back into workplace.

By following the basic savings rule, SM can maximize TSP contribution and at the same time lower down his taxed income within two years while he is still in the workplace.

Since SM is only being taxed for half the year, I would suggest for him to increase his W4. Why? Because of less income for the year due to tax exclusion while in theater and IRS treating his income 15k less due to his contribution to TSP while still in the workplace, he doesn't need to pay as much tax. This way, he can get the money now and start using it instead of getting a tax refund later.

Happy investing...
Pyriel

I haven't been here for a long time, but just came across this.

Check your math. It was recommended to contribute 15K prior to deploying, then 34k after. That adds up to 49k which is over the limit of 44k.

Also, you have to have a pretty substantial income to be able to contribute 34K over the course of just 5 pay periods.

I would propose that you endeavor to make as much of your contributions as possible while you are getting tax free pay, because those contributions will come out tax free down the line when you are likely to be in a higher tax bracket. Your approach will have to be individually tailored to your situation - ie how much you make each pay period and how many months you will be deployed for the calendar year so that you can plan. Remember that if you try to have greater than 80% of your base pay withheld, there is a little flag raised for extra attention to your account. I haven't been through the process, but it might just be simplest to plan to have 80% base pay and 100% of all other pays.

You are right, that comes out to 49k... It should have been 29k.
There should be 6 pay period instead of 5 but i know what you are thinking. You are looking at the contribution not hitting the TSP until the next calendar year. You may be right... However, 29k shouldn't be so hard for some people like Desperado or others who has no debt.

I guess my train of thought on this is that people should try to max as much as they can to TSP while they are deployed... Thanks for bringing out my mistakes;-)
P

Originally Posted by domingo3

I haven't been here for a long time, but just came across this.

Check your math. It was recommended to contribute 15K prior to deploying, then 34k after. That adds up to 49k which is over the limit of 44k.

Also, you have to have a pretty substantial income to be able to contribute 34K over the course of just 5 pay periods.

I would propose that you endeavor to make as much of your contributions as possible while you are getting tax free pay, because those contributions will come out tax free down the line when you are likely to be in a higher tax bracket. Your approach will have to be individually tailored to your situation - ie how much you make each pay period and how many months you will be deployed for the calendar year so that you can plan. Remember that if you try to have greater than 80% of your base pay withheld, there is a little flag raised for extra attention to your account. I haven't been through the process, but it might just be simplest to plan to have 80% base pay and 100% of all other pays.

This is straight off the TSP website under '06 contribution limits:

Q3: Are there any other limits on my TSP contributions?

A: Yes, the Internal Revenue Code places an annual limit on elective deferrals, e.g., tax-deferred employee contributions to the TSP. For 2006, the elective deferral limit is $15,000.

Consequently, once you have contributed $15,000 in 2006, you may not make any more (regular) tax-deferred employee contributions for the rest of the year. For FERS employees, this also means that you will not receive any more agency matching contributions for the rest of the year.
See the Fact Sheet "Annual Limit on Elective Deferrals" for more information on this limit, including what happens to agency matching contributions when the annual limit has been reached.

Q4: I am a member of the uniformed services and am making contributions from pay that is tax-exempt. Does the elective deferral limit apply to these contributions?

A: No, however, there is another provision of the Internal Revenue Code which limits the total amount of contributions that can be made to your TSP account. For 2006, this limit is $44,000.


- (From me again) Basically, the $44000 limit is the absolute amount (from I.R.C. Section 402(g)) you can contribute of both tax-deferred AND tax-exempt pay to your TSP account. Of that $44000, a maximum of $15000 may be be from your tax-deferred pay each fiscal year. (If you were tax-exempt for an entire year, you would be able to put the total $44000 of tax-exempt pay into TSP.)
- Also look under the "What's New" section of the TSP.gov webpage. The following is an excerpt:

Elective Deferral Limit (I.R.C. Section 402(g)) — The elective deferral limit for 2007 will be $15,500. (See the Fact Sheet "Annual Limit on Elective Deferrals."
I.R.C. Section 415(c) Limit — The limit for 2007 will be 45,000. The limit for 2006 is $44,000.

Woo-hoo, I got extended!

Contrary to previous plans of being home around Christmas, I now get two additional tax free months, plus an involuntary extension bonus.

So, I want to make sure I get this right with contributions next year. Here's what I think I'm allowed to do:

1. I can contribute $15,000 during my taxable months (Mar-Dec).

2. I can max out my CZTE months (Jan-Feb) as long as when I sum Jan-Feb's contributions with Mar-Dec's contributions, I don't go over $45,000 grand total for the whole year.

Can anybody confirm or deny this estimation? Thanks!

Almost forgot a secondary question - does maxing out TSP contributions affect the amount I can place in a Roth IRA? I know I will be capped for the retirement plan credit on my tax filings, but I want to make sure I am not making an unauthorized contribution. I consider the Roth more beneficial during tax free pay earnings, and if necessary I would cut TSP contributions short to max the Roth.

As long as you have earned income of $5,000 you are green to go with the Roth IRA. The greater question is where to put the Roth for the greatest growth?

Next year we get to contribute $16,000.

Originally Posted by Birchtree

As long as you have earned income of $5,000 you are green to go with the Roth IRA. The greater question is where to put the Roth for the greatest growth?

Technically I won't have earned income in 2007 because of the 12-month deployment, but a new law allows military to participate in Roth IRAs if all of their earned income is CZTE. Its important for military to know that too, because it is backdated to 2004 and you can contribute and late file the contributions: http://www.irs.gov/publications/p590/ch01.html

As for where to put it ... right now the primary focus is on building a balance. I like to manage all my accounts in one location and have been with USAA for that - can't beat the service. Maybe I'll pay a little more on trades, but I'm not really worried. I'm not trading a lot, as the target for this build-up stage is DCA'ing USAA's S&P 500 Index with its 0.19 expense ratio and close to 1.5% dividends. Both my wife's and my account are self-directed brokerage IRAs and eventually, after I have learned a lot more, and after I have been through some market cycles, and have built that account to substantial balance (including rolling TSP into a traditional IRA brokerage account after retirement), then I will start targeting individual stocks.

I have been reading as much as I can get my hands on. I have picked up a few small stocks, especially in the Aug-Sept bake sale. Stuff like FMD, WLT, LNDC, OPMR, VLCM, SMP, and SCSS. Not a lot of that though compared to the index funds in Roth and TSP - the stock purchases are a bit more of a learning experience really. I'm not a big fan of mutual funds, but I do have some money following Ken Heebner's CGM Focus.

Thanks for your postings.

Originally Posted by anthony

Woo-hoo, I got extended!

Contrary to previous plans of being home around Christmas, I now get two additional tax free months, plus an involuntary extension bonus.

So, I want to make sure I get this right with contributions next year. Here's what I think I'm allowed to do:

1. I can contribute $15,000 during my taxable months (Mar-Dec).

2. I can max out my CZTE months (Jan-Feb) as long as when I sum Jan-Feb's contributions with Mar-Dec's contributions, I don't go over $45,000 grand total for the whole year.

Can anybody confirm or deny this estimation? Thanks!

Almost forgot a secondary question - does maxing out TSP contributions affect the amount I can place in a Roth IRA? I know I will be capped for the retirement plan credit on my tax filings, but I want to make sure I am not making an unauthorized contribution. I consider the Roth more beneficial during tax free pay earnings, and if necessary I would cut TSP contributions short to max the Roth.

I believe it is a combination of both for $45k. So you are allowed $16k for Mar-Dec and you may put in up to $29k for the two months you are in country. Now, i'm not sure if maxing out two months of base pay plus all incentive pay will get you to that $29k magic number. Maybe you are a 5 star general and you just not telling us;-)

Pyriel