Paycheck Chronicles

From The Mailbag: Roth TSP and CZTE

UPDATE:  After a lot of research and discussion, here is the situation as best as my financial expert friends and I can figure.

Adding to retirement accounts while in an area designated as Combat Zone Tax Exempt (CZTE) is an amazing way to beef up your accounts with tax-deferred and tax-free money.

Here's a recent question:

"Hey Kate. I'm just learning about the Roth TSP benefits in a combat zone.  Is it based on a calendar year?  So, if I only have a few pay periods left in the year, then I should be putting in as much as I can in for the rest of the year ?  I'm a single person and I don't really have any expenses, so I can afford to save a lot."

I love this question, I just wish that it had come sooner in the year!  Here's my answer:

"You are absolutely right that you should take the maximum advantage of all the retirement and savings benefits while you are in a Combat Zone Tax Exempt (CZTE) area. There are a couple of rules to deal with here, and it can get confusing.

You are also correct that  TSP contributions are based on a calendar year. If you make the change today, you should be able to get it in for the December pay period. Because all military pay is calculated on a monthly basis (except for certain allowances), I don't think there is any way to affect a change for November.

Then, there is the issue of maximum contributions. Without knowing what you've been contributing all year, I can't do the math. There are three different contribution limits that apply to your situation: the maximum regular contribution limit (called the elective deferral limit) of $17,500 for 2014. This is the most you are able to contribute to your TSP from regular, non-CZTE income. There is also the overall limit to total contributions that can be made, $52,000 for 2014. I'm guessing that is not an issue because it is December already :) The last limit is that you can also only contribute a maximum of $17,500 to a Roth TSP account...if your total contributions are more than this, then you have to put any amount over $17,500 into a traditional TSP account.

If you are aged 50 or over, you can add $5,500 to each of the numbers listed above.

Also, remember that you can contribute up to $5,500 to a Roth Individual Retirement Arrangement (IRA). Tax-free in because of the CZTE, tax-free out because it is a Roth IRA. It is a beautiful thing.

Lastly, don't forget the Savings Deposit Account available because you are in a CZTE. You can only put $10,000 in, but it earns 10% for the entire time that you are CZTE plus 90 days post CZTE. That interest is taxable, but it is still more than you're likely making anywhere else.

I hope that helps, and let me know if you have any questions. I love this kind of question!"

Have you been able to store away some money while you've been in a CZTE area? How has that worked out for you?  Did you know all the benefits of contributing to a Roth TSP account while you're in a CZTE zone?

UPDATE:  After a lot of research and discussion, here is the situation as best as my financial expert friends and I can figure.

Show Full Article

Related Topics

PayCheck Chronicles

Most Recent Military Pay Articles

View more
This block is broken or missing. You may be missing content or you might need to enable the original module.