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Paycheck Chronicles

From The Mailbag: Excess Thrift Savings Plan Contributions

The Defense Finance and Accounting Service does a good job of not letting you contribute too much to your Thrift Savings Plan account. The military's Thrift Savings Plan (TSP) is a tax-advantaged way to save for retirement, and you own the money whether you stay in the military for four years or 40.  Over 40% of military members make some contribution to their TSP accounts, which is great, but I wish it was a LOT closer to 100%.

As service members learn more about TSP, they often want to contribute as much money as possible.  Yearly TSP contributions are limited by federal law.  For 2017, you may make regular contributions of up to $18,000 per year, and up to $54,000 per year, plus up to $6,000 more if you are age 50 or older.  But is hard to hit those exact amounts when TSP contributions are designated as a percentage of your pays.  Thankfully, usually the Defense Finance and Accounting Service (DFAS) has you covered.

Dear Kate,

I'm trying to max out my TSP contributions this year, but I can't make the math work.  Is there a trick?

JP

Well, it's not really a trick, but there is a workable solution.

Dear JP,

It's nearly impossible to designate exactly the right amount of TSP contributions.  However, the Defense Finance and Accounting Service (DFAS) does an excellent job of curtailing TSP contributions when you reach the limit.  My husband sets his contributions just a little high, and then DFAS takes out only the remaining amount in December.  It means that his paycheck is just a smidge higher in December, but that's not a bad thing.

I suppose that DFAS could mess this up, but I have talked to many people about this and everyone has the same experience:  DFAS gets it right.

I hope that helps!

Kate

I know maxing out your TSP contributions may seem impossible, but it can be done.  My husband started off with a small amount - I think it was $50 a month - and bumped it up a smidge with every yearly pay raise, promotion, and time-in-service raise.  Soon that $50 became $100, which became $200, until he eventually reached the full amount a few years back.  We didn't notice the increased deduction because it came at the same time as increases in pay, but he now has a nice addition to his retirement income bucket.

If you have a TSP account, I encourage you to go into myPay right now and increase your contributions.  If you don't have a TSP account, set one up!  Even a 1% increase will add up over time.  It's super-easy to switch it back if you truly can't make ends meet.

 

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