The IRS has announced the 2017 Thrift Savings Plan contribution limits. If you're aggressively saving money in this fabulous tax-advantaged retirement savings plan, you'll want to keep an eye on your contributions to ensure that they stay below the limits that apply to your situation.
Elective Deferral Limit $18,000This is the main limit, and it applies to all traditional and Roth contributions from taxable base pay, special pays, and bonuses. It's an aggressive goal for most people, dividing out to be $1,500 per month.
Annual Addition Limit $54,000For military members, this higher limit includes the elective deferral limit of $18,000 plus any traditional contributions made from tax-exempt pay earned in a combat zone. You may not put more than the elective deferral limit into a Roth TSP account, even if it is earned in a tax-free combat zone.
Every now and then I get a letter from a service member who is trying to reach this limit, and I am so impressed with them. The only time my husband could have done it, when he was deployed and we were both working, we didn't even know about it and we certainly weren't highly motivated. Now that we're feeding four extra people, it would be really challenging to make happen. If you're young, and don't have a lot of obligations, I implore you to learn from our mistakes and challenge you to see how much you can sock away in your TSP account during a deployment.
Catch-up Contribution Limit $6,000Service members age 50 or older may contribute an additional $6,000 on top of both/either limit listed above, for totals of $24,000 of regular contributions and $60,000 in total contributions during a year where there are non-taxable contributions to a traditional TSP account.
How To Calculate Your ContributionsIf you're trying to max out your TSP contributions, I have bad news and good news.
The bad news is that it can be a little tricky to calculate your contributions because they have to be designated in whole percentages of your income. You can designate portions of base pay, special pays and bonuses, and the math gets rough if you're doing more than one pay. It's especially bad if you promote or go over a time-in-service raise mid-year.
The good news is that, in every case I've seen so far, the Defense Finance and Accounting Service (DFAS) is excellent at making sure you don't over-contribute. They'll curtail your contributions at the limit for your situation and prevent you from making additional contributions for the rest of the year. However, because the tax-free combat zone situation can be inaccurately reported, I recommend keeping a close eye on contributions once you exceed the elective deferral limit and move into the annual addition limit area.
So, how do you calculate your contributions? Here's the simplest scenario: Let's say you're trying to meet the elective deferral limit of $18,000 per year, or $1,500 per month, out of your base pay. If your pay will be the same for the whole month, take your base pay (from the 2017 pay charts) and divide ($1,500/base pay) to get a percentage. For example, if your base pay is $3,000 per month, $1,500/$3,000 equals 50%.
However, if you get $500 in special pays each month, you could designate 100% of your special pay and then only 40% of your base pay.
If you have a mid-year change in base pay, you can either:
- figure out how your total yearly compensation and divide by your total year contribution, OR
- contribute a set contribution for the first half of the year, and then re-calculate your contributions after your pay change to fulfill the remaining allowable contribution.
TSP is a great tool, and the only take-with-you retirement savings for those who don't stay in the military until retirement. With industry-low fees and a wide variety of investment choices, I encourage everyone to take full advantage of this awesome opportunity.