Author Topic: mil and civ TSP - contribute to both?  (Read 1197 times)

Kierun

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mil and civ TSP - contribute to both?
« on: July 29, 2020, 11:09:47 AM »
mil TSP - legacy, no matching
civ TSP - BRS, matching

Does it make sense to continue to contribute to both even though there's no matching on the mil? Originally, my thought was to contribute to both because the mil balance is quite low, but does that really matter? It's been making the mathing to stay within the IRS contribution limit a bit annoying, especially recently with unexpected covid activation orders and such.

a) Drop contributions to mil and just max out the civ for simplicity and all that?
b) Continue to math out contributions to both to stay within IRS limit?
c) better ideas?

Mahalos!

terran

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Re: mil and civ TSP - contribute to both?
« Reply #1 on: July 29, 2020, 11:52:58 AM »
@Nords is the resident military retirement expert, so I suspect he can give a more definitive answer, but unless there's something special about the military TSP that makes it more attractive than the civilian version then I would just contribute to the civilian one to simplify your life. All other things being equal (mostly investment options) then there's no advantage to splitting investments across multiple accounts.

Nords

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Re: mil and civ TSP - contribute to both?
« Reply #2 on: August 01, 2020, 09:15:57 AM »
Thanks for the tag, Terran!

Kierun, let me make sure I understand the vocabulary:
mil TSP - legacy High Three pension, no matching
civ TSP - BRS, FERS, matching
I'm going to assume that you have no match in the military TSP but you get the federal civil-service match in your civilian TSP, right?  I'll base the rest of my response on this assumption, so please correct me if I'm mistaken.

Does it make sense to continue to contribute to both even though there's no matching on the mil? Originally, my thought was to contribute to both because the mil balance is quite low, but does that really matter? It's been making the mathing to stay within the IRS contribution limit a bit annoying, especially recently with unexpected covid activation orders and such.
As you've noted, your elective deferral limit on 401(k) contributions ($19,500 in 2020) is tracked by your Social Security Number on your W-2s (for the IRS).  The EDL does not include employer matching contributions (from DoD or the federal employer) so you can contribute all $19,500 on your own. 
https://www.tsp.gov/making-contributions/contribution-limits/

You can split up your $19,500 on contributions between the two accounts any way you want, as long as the total does not exceed $19,500.  The TSP system doesn't have the feature to track your separate contributions by SSN between two accounts-- only the IRS does that from the W-2s-- so it's up to you to avoid the IRS automated query letter.

As you've also pointed out, it doesn't make any difference to contribute to both.  You'd want to maximize your match in your civil-service account, but you don't have any compelling reason to contribute to your military TSP account as long as you can reach the EDL (and get the full FERS matching contributions) from your civil-service pay. 

When you're contributing to your civilian TSP, you'd still want to contribute in all 12 months of the year in order to receive the match.  If you front-load your civilian TSP and reach the EDL before December then the TSP will cut off further contributions and you'll lose some matching contributions.

If you're receiving combat zone tax-exempt pay then you can contribute more to your military TSP (up to the annual addition limit, $57K in 2020).  That's a whole different messy discussion.

Does it make sense to continue to contribute to both even though there's no matching on the
a) Drop contributions to mil and just max out the civ for simplicity and all that?
b) Continue to math out contributions to both to stay within IRS limit?
c) better ideas?
I'd do a).  The only time it'd make sense to do b) would be if you mobilized on active duty and (for some reason) your civil-service pay completely stopped (no more matching contributions, either).  If you still wanted to reach the EDL then you'd have to turn on your military TSP contributions (and do your math again).

Kierun

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Re: mil and civ TSP - contribute to both?
« Reply #3 on: August 05, 2020, 05:13:09 PM »
Much mahalos for the replies!

Yep, FERS, thanks for that correction, you're correct.

So, I still have some digging and research to do, but seems like the agency will allow me to retroactively catch up on my missed civ TSP contributions and matching (LWOP status) upon returning from military orders. After this next set of active duty orders, I'll transition to only civ TSP contributions, thanks again Terran and Nords.

Michael in ABQ

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Re: mil and civ TSP - contribute to both?
« Reply #4 on: August 06, 2020, 02:39:17 AM »
I assume you're Guard or Reserve. I'm Guard but work for the DoD as a civilian. I'd recommend keeping at least 1% of your military pay going into the TSP just so it makes it easier in the future if you want to increase that if you're deployed or on other long-term active duty orders. In my case I did make the switch to the BRS so I make sure I've got at least 5% of my military pay going into the traditional to get the full match. I do the same with my civilian TSP and then do additional Roth contributions with my civilian TSP since that's the bulk of my income.
 
I'm finishing up a deployment now and I've kept the traditional in my military TSP at just 5% for the match but bumped my Roth contributions up to about 20% to take advantage of the tax free contributions. I should end up pretty close to the $19k max by the end of the year.

In my case I'm not planning on making a 20-year career out of federal service so I'll just take whatever pension money I've had to contribute to FERS whenever I leave and roll it into an outside account. 4.4% of my pay for 1% per year pension when I'm in my 60s - not a great deal. Especially when I'll have a much better reserve military pension starting at 59 and 3 months.

terran

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Re: mil and civ TSP - contribute to both?
« Reply #5 on: August 06, 2020, 09:15:44 AM »
I should end up pretty close to the $19k max by the end of the year.

Quick note: the max is $19.5k this year, if you want to make an adjustment.

Kierun

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Re: mil and civ TSP - contribute to both?
« Reply #6 on: August 06, 2020, 10:35:55 AM »
I assume you're Guard or Reserve. I'm Guard but work for the DoD as a civilian. I'd recommend keeping at least 1% of your military pay going into the TSP just so it makes it easier in the future if you want to increase that if you're deployed or on other long-term active duty orders. In my case I did make the switch to the BRS so I make sure I've got at least 5% of my military pay going into the traditional to get the full match. I do the same with my civilian TSP and then do additional Roth contributions with my civilian TSP since that's the bulk of my income.
 
I'm finishing up a deployment now and I've kept the traditional in my military TSP at just 5% for the match but bumped my Roth contributions up to about 20% to take advantage of the tax free contributions. I should end up pretty close to the $19k max by the end of the year.

In my case I'm not planning on making a 20-year career out of federal service so I'll just take whatever pension money I've had to contribute to FERS whenever I leave and roll it into an outside account. 4.4% of my pay for 1% per year pension when I'm in my 60s - not a great deal. Especially when I'll have a much better reserve military pension starting at 59 and 3 months.
What sort of difficulties are there with going from 0% to x%? I've recently changed from 92% to 15% and back to 92% from drilling status to active duty and back to drilling status and it's pretty darn easy and fast. Is there something about going from no contributions to starting them that is problematic? Are you aware of the retirement age reduction? You could, theoretically, reduce the age you can start receiving your pension down to 50, either way you could get it before 59 and 3 months.

Michael in ABQ

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Re: mil and civ TSP - contribute to both?
« Reply #7 on: August 06, 2020, 11:04:06 AM »
I assume you're Guard or Reserve. I'm Guard but work for the DoD as a civilian. I'd recommend keeping at least 1% of your military pay going into the TSP just so it makes it easier in the future if you want to increase that if you're deployed or on other long-term active duty orders. In my case I did make the switch to the BRS so I make sure I've got at least 5% of my military pay going into the traditional to get the full match. I do the same with my civilian TSP and then do additional Roth contributions with my civilian TSP since that's the bulk of my income.
 
I'm finishing up a deployment now and I've kept the traditional in my military TSP at just 5% for the match but bumped my Roth contributions up to about 20% to take advantage of the tax free contributions. I should end up pretty close to the $19k max by the end of the year.

In my case I'm not planning on making a 20-year career out of federal service so I'll just take whatever pension money I've had to contribute to FERS whenever I leave and roll it into an outside account. 4.4% of my pay for 1% per year pension when I'm in my 60s - not a great deal. Especially when I'll have a much better reserve military pension starting at 59 and 3 months.
What sort of difficulties are there with going from 0% to x%? I've recently changed from 92% to 15% and back to 92% from drilling status to active duty and back to drilling status and it's pretty darn easy and fast. Is there something about going from no contributions to starting them that is problematic? Are you aware of the retirement age reduction? You could, theoretically, reduce the age you can start receiving your pension down to 50, either way you could get it before 59 and 3 months.

It's probably not that big of a deal to go from 0% to something, but I was told at one point you could run into problems if you are already deployed and you try to setup the TSP for the first time.

Are you talking about retirement age reduction for military or civilian? For military I know that every 3-month period while mobilized on certain orders reduces your retirement age by 3 months (I'll be just shy of knocking off a year instead of 9-months for this deployment). For civilian I haven't looked into it that closely. I've only got about two years of civilian time and I can't see myself staying a federal employee for more than another 4-5 years. The bureaucracy is too frustrating. Also, I've got a great boss now but I doubt she'll be around forever. My goal is to buy or start my own business, not put in 20-30 years as a fed to get a pension.

Kierun

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Re: mil and civ TSP - contribute to both?
« Reply #8 on: August 06, 2020, 01:04:38 PM »
Are you talking about retirement age reduction for military or civilian?
Military reduction, which you already know about. Civilian side, it's not necessarily age reduction to receive pension, but rather credited towards your years of creditable service.