Author Topic: Maximizing Deployed TSP Contributions with a Civilian 401k  (Read 453 times)

Wings5

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Maximizing Deployed TSP Contributions with a Civilian 401k
« on: August 08, 2018, 10:23:05 AM »
I work a civilian job and serve in the reserves as well. Iím trying to maximize my retirement contributions at both jobs. My employer matches 100% of my 401k contributions to 10%. Iím opted into the Blended Retirement System (BRS), and contribute 5% there to get a 5% match.

I will have tax-exempt combat pay this year and Iíd like to exceed the $18,500 elective deferral limit. Does anyone have experience with the mechanics of this? I'm curious what the W-2 looks like from DFAS.

This is what Iíd contribute this year if I donít change anything. I've planned it so I hit $18,500 on the mark.

Civilian job   

$16,500 contribution      
$16,500 company match
$22,000 company profit sharing
      
$55,000 civilian total  (1st annual addition limit met)

Reserves          

$2,000 contribution      
$2,000 match

$4,000 military total ($51,000 remaining on 2nd annual addition limit)
                                       
$18,500 total elective deferrals (elective deferral limit met)

Iím trying to figure out how much tax advantaged space I have available while in the combat zone, since Iíd like to up my contributions. Those (traditional, tax-exempt combat pay) contributions count towards the $55,000 annual contribution limit, and that limit is per employer according to IRC 415(c). 

Using the above math:
  • Iíve maxed out my elective deferrals at $18,500.
  • Iíve used up $4,000 towards the (separate) $55,000 limit for the reserves.
  • Conclusion . . . I should have $51,000 of space to make traditional contributions from the TSP from tax-exempt combat pay. Since those contributions are well above the 5%, the DFAS computers would not match any of it, so there's no threat of going over there.

Question 1 - Is this all correct? Am I missing anything? There's a ton of tax advantaged space in this scenario, right?
Question 2 - If itís correct, how does the reserves / DFAS W-2 show a breakdown of contributions that count towards the $18,500 elective deferral limit, and contributions that count towards the $55,000 annual addition limit? I believe it's a Box 14 code E amount that shows deployed TSP contributions.

If anyone has maxed out their TSP while deployed, Iíd love to hear from you. I'm trying to share this with a wider audience who've asked me to look into it.

Thanks in advance for any help!

Nords

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Re: Maximizing Deployed TSP Contributions with a Civilian 401k
« Reply #1 on: August 14, 2018, 11:59:37 AM »
Iím opted into the Blended Retirement System (BRS), and contribute 5% there to get a 5% match.

I will have tax-exempt combat pay this year and Iíd like to exceed the $18,500 elective deferral limit. Does anyone have experience with the mechanics of this? I'm curious what the W-2 looks like from DFAS.

This is what Iíd contribute this year if I donít change anything. I've planned it so I hit $18,500 on the mark.

Reserves          

$2,000 contribution      
$2,000 match

$4,000 military total ($51,000 remaining on 2nd annual addition limit)
                                       
$18,500 total elective deferrals (elective deferral limit met)

Iím trying to figure out how much tax advantaged space I have available while in the combat zone, since Iíd like to up my contributions. Those (traditional, tax-exempt combat pay) contributions count towards the $55,000 annual contribution limit, and that limit is per employer according to IRC 415(c). 

Using the above math:
  • Iíve maxed out my elective deferrals at $18,500.
  • Iíve used up $4,000 towards the (separate) $55,000 limit for the reserves.
  • Conclusion . . . I should have $51,000 of space to make traditional contributions from the TSP from tax-exempt combat pay. Since those contributions are well above the 5%, the DFAS computers would not match any of it, so there's no threat of going over there.

Question 1 - Is this all correct? Am I missing anything? There's a ton of tax advantaged space in this scenario, right?
Question 2 - If itís correct, how does the reserves / DFAS W-2 show a breakdown of contributions that count towards the $18,500 elective deferral limit, and contributions that count towards the $55,000 annual addition limit? I believe it's a Box 14 code E amount that shows deployed TSP contributions.

If anyone has maxed out their TSP while deployed, Iíd love to hear from you. I'm trying to share this with a wider audience who've asked me to look into it.

Thanks in advance for any help!
Thatís all correct.  There seem to be a couple tricks to the Roth TSP portion (of contributing tax-exempt pay) which might not apply to civilian Roth 401(k) accounts. 

Youíre probably familiar with the TSP table at this link:
https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/contributionLimits.html

The first footnote under that table says:
ďIf you are a member of the uniformed services, you should know that Roth contributions are subject to the elective deferral limit ($18,500 for 2018) even if they are contributed from tax-exempt pay. If you want to contribute tax-exempt pay toward the annual additions limit, you will have to elect traditional contributions for any amount over the elective deferral limit.Ē

In other words, if you hit $18,500 in your Roth TSP at any time during the year then the TSPís computers will lock you out of further contributions.  You want to hit that Roth TSP $18,500 limit with your end-of-December contribution, and that monthís contribution (to either/both of the Roth TSP & traditional TSP) has to be at least 5% of your base pay in order to maximize the DoD BRS match. 

Hereís a link to a very rudimentary Google Sheet which shows a sample scenario.  (If you want to edit this spreadsheet then you have to save a copy to your hard drive and edit that.) 
https://docs.google.com/spreadsheets/d/1JW-8EpzRv4Fpt7hV35Su0Av0Q9AgAtGkIVjY-AX6aa0/htmlview#gid=0

Iím afraid that I donít know what code is on your W-2, but Iíd suggest contacting Spencer over at MilitaryMoneyManual.com.  I think heís seen that type of W-2 before.

Other traps to watch out for during the calendar year include any base-pay raises due to longevity or promotion, because your contribution amounts to the Roth TSP and traditional TSP are expressed as percentages instead of as dollar amounts.  Of course you can also contribute from your special pays like Imminent Danger Pay and Hazardous Duty Pay.

Iíve confirmed all of these details with the DoD BRS office, and theyíve coordinated a response with the TSP (the Federal Retirement Thrift Investment Board office).  I have a much longer more comprehensive post on this topic whichíll be published at 11 AM EDT Thursday 23 August. 

Wings5

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Re: Maximizing Deployed TSP Contributions with a Civilian 401k
« Reply #2 on: August 17, 2018, 12:48:39 AM »
Thank you very much Nords!

Nords

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Re: Maximizing Deployed TSP Contributions with a Civilian 401k
« Reply #3 on: August 25, 2018, 03:16:20 AM »
Thank you very much Nords!
Youíre welcome, glad itís helping!

As mentioned, Iíve had enough questions on deployment topics to write a larger post:
https://the-military-guide.com/maximizing-your-thrift-savings-plan-contributions-in-a-combat-zone/
It also covers how to let the IRS know about your deployment before their computers send you a query letter.