Ask The Experts: Money Matters

By Mike Miles

Combat-zone tax-exempt contributions

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Q. I have both a civilian and military Thrift Savings Plan account because I was mobilized for part of 2011-12. Because I was in a combat zone, much of my income was tax exempt (CZTE). The military allowed me to contribute that tax-exempt income into my TSP. It is not a tax deduction because the income wasn’t taxable in the first place.

However, they also made contributions from my taxable income. I thought it was all from my CZTE. When I returned to my civilian job, I began to contribute and maxed out my contributions, not knowing about the earlier tax-deductible contributions.

Obviously, I over-contributed and just paid the income tax on the “overage.” But that overage is still in the TSP account.

Military: $7,450
CZTE: $13,464
Civilian: $17,540
Catch-up: $5,474 (Roth)

1. How is that taxable (and taxed) overpayment treated within TSP?
2. Can I combine my military and civilian accounts?
3. If combined, can I move the CZTE money into my Roth TSP?
4. Can I move the “overage” that I have now paid taxes on into the Roth, as well?

Both of the amounts I want to move into the Roth have been taxed or were tax-exempt when earned.

A. The usual limits do not apply to TSP contributions from CZTE pay; they only apply to contributions from taxable basic pay, incentive pay, special pay and bonus pay. The Annual Additions Limit under IRC 415c does apply, however, and it limits the total contributions from all sources to $51,000 for 2013. My guess is that the money was just rearranged in the TSP to fall under the applicable limits for the various types and that you do not, in fact, have excess contributions in your accounts. You may combine your military and civilian accounts as long as you are separated from service covering at least one of the accounts and there are no CTZE contributions left in the military account. Those must be withdrawn first, or they money will be distributed to you when your request to combine the accounts is processed. The CTZE money in the traditional TSP account cannot be transferred to the Roth TSP.

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TSP contribution limit

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Q. Quite a few of us here in Afghanistan believe the new Roth IRA is an excellent investment. We are contributing tax-free money to receive tax-free contributions and earnings after we retire and meet withdrawal criteria. We leave Afghanistan in late February. Since we have been in a combat zone for two months, we plan to max out the Roth as much as possible. If we are able to max the Roth at $17,000, how much may we contribute to the traditional TSP/Roth TSP for the rest of the year?

A. The TSP contribution limit applies to all of your TSP contributions — traditional and Roth — combined for the year.

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Invest in both Roth TSP and Roth IRA?

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Q. I am a FERS employee who has 12 years before I can retire. I have already invested $4,000 in a Roth IRA for 2012 and switched all of my Thrift Savings Plan contributions to the Roth option in May. My financial adviser said I could not invest more than a total of $5,000 in both Roth accounts for 2012 and told me to switch my contributions back to the traditional TSP. Is he correct, or can I invest the $4,000 in the Roth IRA and $17,000 in the Roth TSP? In other words, can I still invest the annual maximum of $17,000 in my TSP for 2012?

A. Your tax preparer is the person to guide you in this area. I can tell you, though, that the TSP Roth contribution limit is not affected by your Roth IRA contributions.

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Deductions in final close-out check

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Q. If I retire at the end of August, and had not previously taken advantage of TSP catch-up, can I max out the tax benefit by having the balance of my annual allowable TSP contribution limit, plus the full retirement catch-up amount all taken out of the last close-out check for unused annual leave and sick leave? I’m in senior-level service, so I get 50 percent of unused sick leave.)

A. You may set your Thrift Savings Plan deferral amount as high as you like, within the limits of your paycheck amount. Once the annual deferral limit, including catch-up, is reached, your deferrals will be suspended.

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Roth TSP contribution limits

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Q. My spouse (a federal employee) and I contribute the maximum allowed to the Thrift Savings Plan each year, regular and catch-up. Can we still contribute to a Roth TSP over and above the limit?

A. Your Individual Retirement Account contributions do not affect the limits for TSP contributions. Your TSP eligibility, along with your income and other factors, may affect your IRA contribution limits, however.

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IRA contributions after retirement

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Q: My wife and I are retiring from federal civil service effective Sept. 30 and want to continue adding money to individual retirement accounts we have had since before our civil service careers. We will not be employed after leaving the federal government. What is the contribution amount we can make to an IRA annually?

A: If you have no earned income, you can’t make IRA contributions.

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