What’s my Maximum Retirement Contribution, anyway?

The TSP is the military’s 401k. The below may apply to your retirement account too.

Just about every current military member has sat in a training where someone has demonstrated the power of compounding interest. “Look”, they say, “if you start when you’re 18, by the time you retire you have $1 million. Wait till you are 25, only $600,000. Start saving money!” Never is maximizing the TSP discussed.

Dutifully, those young military members go off and save a small portion per paycheck. Maybe the trainer even printed out the Thrift Savings Plan election form. Maybe they explained the difference between a Roth and Traditional account.
I was one of those trainers. Each year I gave the same speech. I thought I was doing the right thing, but I was miserably uninformed. Not once did anyone challenge my declaration that they could contribute $5,500 to their TSP. Even today, when I talk to my co-workers, Officers, Enlisted, and Civilian employees, no more than one in ten know what the max contribution to the TSP actually is.

For 2017, the maximum TSP contribution is $18,000.
This remains unchanged from 2015 and 2016. I would expect an increase before 2020.
This information isn’t easy to find; you really need to drill down. Fortunately, contribution maximums are set in IRS code, and they match the civilian sectors 401k/403b maximums.

When the Max isn’t the Max.

  • If you are 50 or over, you get to contribute an additional 6,000 in catch up contributions.
    If you are considering the new Blended Retirement System, the government will match your contributions, up to 5% of your pay.
  • If you are deployed to a combat zone, you have the additional ability to contribute extra to the TSP. These additions are not counted against your annual maximum. However, there are limits to the amount of tax-free money you can contribute to the Roth side of the TSP. Uncle Sam needs to tax that money somehow.
    If you work for another federal agency and contribute to FERS and the TSP through your reserve time- still $18,000
  • The total maximum that can be applied to your account through a combination of your’s and your employers’ contributions is $54,000.

So how much can I contribute to ROTH?
When the TSP instituted the Roth option, it confused many people. Most financial advice coming from the civilian side conflated Roth TSP with a Roth IRA.
Unlike a Roth IRA, the ROTH TSP has a limit of $18,000. You can contribute $9,000 Traditional, $9,000 Roth, or any combination thereof. Additionally, unlike the Roth IRA which phases out with higher incomes, the “Roth TSP is similar to a Roth 401(k), not a Roth IRA. There are no income limits for Roth TSP contributions.”

Some important lessons learned for active duty members:

  • If your service allocates contributions on its own platform, it does so to ensure you cannot make more than the annual contribution, which might incur a tax penalty for you. Unfortunately, if at the end of the year you wish you had contributed more money, especially more tax deferred money, you are out of luck.
  • The characterization of your contributions cannot be changed. For example, if you made some Roth contributions, but later wanted to change those contributions to Traditional to reap the tax advantages this year, you are out of luck. This mistake cost me the Savers Credit this year.
  • There is no ability to make contributions after December 31st for the prior tax year. I recommend having an IRA set up to capture your additional contributions for your 2016 taxes, and work had to ensure you hit that 18,000 max out prior to your last paycheck. You can check your contribution summary on the main page of your account.

Coming up:
-TSP – Traditional vs Roth, Tax Advantages Then and Now
-How my misunderstanding of the TSP cost me a $3,800 refund in 2016.
-Investing in the TSP, it will Bogle your Parent’s minds.
TSP and IRA’s – can I have both?

Disclaimer: I am not a licensed financial counselor of any sort. The opinions contained here are my own. Investing has implicit risk, past gains are no guarantee of future returns. You may lose money, including the principal. These opinions are my own, and are not endorsed by any of the armed services or the US Government.

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