By Mike Miles
May 28th, 2013 | Uncategorized
Q. I’m 59 and retiring June 2, which is the first day of a new pay period. Will my Thrift Savings Plan election and catch-up contribution be deducted from my last paycheck? I will have earned no salary in that pay period, but I will have my lump-sum annual leave payout.
A. TSP deferrals are not taken from annual leave payout checks.
March 11th, 2013 | Uncategorized
Q. My husband will be retiring in June 2014. He will turn 50 in March 2014. Can we still contribute the full $17,500 plus $5,500 catch-up (I realize next year contribution limits may increase) even if he is only in for half a year?
A. Yes, as long as his pay will support the deferrals. The limits are not adjusted for partial years.
January 21st, 2013 | Uncategorized
Q. I recently took out a $40,000 Thrift Savings Plan loan so I could refinance my house. I had a first 4.875 percent and a second 8.5 percent. This lowered my monthly house payment by $1,000. I am paying it back over five years at $309 per payment. Would it be better to lower the amount I contribute from 10 percent to 5 percent and put that amount toward the loan? I did a quick calculation, and the taxes would be an additional $1,250 a year (approximately) since I would lose the pretax exclusion on the $5,000.
A. I think I’d stick with the loan repayment and maximum TSP deferrals.
November 5th, 2012 | Uncategorized
Q. I’m a 45-year-old reservist who has been recalled to active duty. I’m also an E-6 with more than 18 years of service.
I can afford to invest my entire pay, including incentive pays, and wondered if it would be better to pay off an existing mortgage, approximately $60,000, just refinanced last month at 3.5 percent and a 15-year term? Or would it be better to max out the Roth TSP and set up another deferred account or IRA of some sort?
My wife makes about $55,000 per year.
A. It’s impossible to say what’s best for you without the proper analysis and understanding of your particular goals, resources and constraints. In general, however, I prefer to see you retain the mortgage and invest the money prudently instead of using it to pay off the mortgage.
August 14th, 2012 | Uncategorized
Q. The Internal Revenue Service deferral limitation for 401(k) accounts is based upon a dollar limitation, which is the same for government and service members who contribute to the Thrift Savings Plan. For federal employees wanting to maximize their TSP contributions, this is a simple process on Form TSP-1: You merely take the current IRS limit ($17,000) and divide it by the number of pay periods (26) and you get the amount you should withhold in each pay period ($653.84). If you receive a step increase, or get promoted, or anything else that changes your pay, there are no effects to your present TSP contributions. The only time you need to adjust the forgoing is if the IRS increases the 401(k) limit and you wish to match that limit.
Service members must use a different TSP Form (TSP Form U-1), which only permits them to allocate a percentage of their basic pay (and other special pays if one receives them) toward their TSP account. This isn’t a terribly difficult calculation to generate the right percentage to maximize your TSP contribution, but the problem is that active-duty members have to readjust this percentage every time they get promoted or their basic pay changes. Getting promoted isn’t something that happens too often for officers, but Congress adjusts the basic pay every year (lately in a way that rightfully benefits the troops). Plus, every two years all service members get a longevity bump in their basic pay, too.
This is a huge waste of time for service members that seems like such an easy fix: Just change the Form TSP-U-1 to permit dollars and percentages. Yet I’ve been unable to glean anything from the TSP website or elsewhere on the Internet as to why this is not being changed.
Can you please explain why the TSP and/or Defense Department wastes our time like this?
Full Disclosure: My wife is on active duty, but, as the family CFO, I end up redoing the TSP-U-1 every year.
A. I can’t tell you why the rules are what they are. This is a question for the Retirement Thrift Investment Board (www.frtib.gov).
June 26th, 2012 | Uncategorized
Q. Have you heard anything regarding an increase to the maximum Thrift Savings Plan annual contribution ($17,000)?
A. You should expect the TSP deferral limit to track the 401(k) deferral limit, which is indexed to inflation with a $500 minimum increase. Any increase for 2013 won’t be announced until later this year, usually in October.
June 19th, 2012 | Uncategorized
Q. My husband retired from 36 years of federal service on June 2. He is in CSRS. We hope he will begin receiving his check within a month or two. Given that he retired halfway through the year, and given that his initial checks will be only 60 percent to 70 percent of what is due, we anticipate that he could get the money owed for those first months in a lump sum in the next tax year. This could be a sizable sum and could have significant tax consequences. It also makes it hard to plan for the correct amount of withholding for this year. I was told that there is a rule that when he gets that lump sum, if it is over $5,000, he can put it in his Thrift Savings Plan account. Is that correct? If so, what paperwork do we need to file?
A. I know of no such rule. Annuity income is not eligible to be deferred into the TSP.
April 11th, 2012 | Uncategorized
Q. I am a federal employee with more than 34 years of service under CSRS. I am planning on retiring Jan. 3, 2013. The amounts I earn in pay period 26 (Dec. 16-29, 2012) and pay period 27 (Dec. 30, 2012-Jan. 12, 2013) will not be paid to me until after Jan. 1, 2013, and will therefore be shown as taxable income on my 2013 W-2. Can I designate 100 percent of my net earnings for those two pay periods to my Thrift Savings Plan to reduce my taxable income for 2013 and maximize my TSP account?
A. You may defer as much of your income as you like to the TSP, until the annual contribution limit is reached. You should check with your payroll office to make sure you know which tax year will be affected by the deferral.