TSP During Deployment

[sabo1323]

I know there was some pretty extensive discussion about this on this forum previously, but no one addressed the aspect that I am concerned with so I thought I'd ask again.

Obviously it makes sense to invest in a Roth-IRA with tax-free money during deployment. However, if I have a spouse still earning taxable income while I'm deployed, wouldn't it make sense to continue investing in TSP (tax-deductible) in order to offset her income?

Also, she's a school teacher, so for the month's of June, July, and August she won't have any income and I will be deployed. Does this mean that my 10% TSP contribution for those months is essentially producing a negative taxable income for us for those months? (i.e. her income=0, my taxable income=(-$450).

Also, according to my math if I max out my TSP contribution, it's feasible to suggest that we could actually have a negative taxable income for the entire year. Does this offer me any advantage? That is, I've estimated our taxable income at $21,000 before standard deduction. After the 2011 standard deduction is applied, our taxable income is roughly $10,000--and that's with my current 10% TSP contribution. If I maxed it out to $16.5k we would essentially have a negative taxable income for the year.

I'm not any sort of expert or even a guru on finances, taxes, investing, etc. so any advice is greatly appreciated.

[domingo3]

This reply is pretty late, but if you're still out there...

First, each W-2 that you get is separate. You can't have a negative income for the year to offset your wife's income.

Second, taxes are handled on a yearly basis. It doesn't matter what months the income happens in, so there's no worries (from a tax viewpoint) if she gets a paycheck in the summer months.

Third, your income while deployed is already non-taxable. You don't get a double whammy by putting it into the tax deductible TSP and subtract from zero. Whatever you put into the TSP while deployed is recorded as being a tax-free contribution. What that means is that if you put in $10k while deployed, you can take out $10k tax free after you retire. All the earnings on that money will still be taxed upon withdrawl, though.

Fourth, there's not usually any really good reason to try to press your taxable income down super low for a particular tax year. Generally, you're better off having an even income year-to-year, rather than low one year and high the next. The year you have the higher income, you get taxed at a higher rate, so you end up paying more taxes.

A strategy might be to max out your roth ira, and then put the rest of the money you can save in the SDP. If you max SDP out, then put more in some short term mutual funds. Next year when you're back, max out your TSP with the money that you saved this year. I'm crossing my fingers that TSP will finally bring the Roth option to us in 2012. Depositing into Roth TSP is a better deal that contributing tax-free to a tax-deferred account. Unfortunately, we don't have that option quite yet.