If you're uniformed Legacy, you can front load without any problems.
If you're uniformed Blended Retirement System, front loading will mean you miss out on part of the 4% match, but will receive the 1% match no matter what.
If you're Civilian, front loading will mean you miss out on the 4% match.
Ugg, should have included that. Husband is uniformed, legacy.
No problem then!
Thanks for the tag, Sam!
You’re right, Villanelle & Sam, legacy High Three servicemembers (and the handful of us Final Pay dinosaurs) can front-load their TSP contributions without worrying about agency/matching contributions.
Blended Retirement System servicemembers should always start their annual budget assuming 12 monthly contributions of at least 5% of base pay to the TSP in order to get the full DoD BRS agency/matching contributions. (That’s especially important if they’re deploying to a combat zone.) It’s even more complicated if they get a pay raise during the calendar year from a longevity column on the pay tables (or a promotion). The agency/matching contributions are also not part of the elective deferral limit ($19K in 2019) so it’s important to hit that 5% minimum base pay contribution in all 12 months.
Speaking of combat zones, both legacy High Three and BRS servicemembers can contribute combat zone tax-exempt pay to the TSP up to the higher annual addition limit. ($56K in 2019.) If you’re a legacy High Three servicemember and you know you’re deploying to a combat zone then you’d want to contribute as much as you can of that total from the combat zone.
For BRS servicemembers... it’s difficult to optimize your CZTE contributions because the TSP doesn’t explain it well and there are lots of moving parts. The TSP is working on training materials, but it’ll be a year or three. Several servicemembers are working on spreadsheets, calculators, and apps. These are the best two references:
https://the-military-guide.com/maximizing-your-thrift-savings-plan-contributions-in-a-combat-zone/(Use the spreadsheet)
http://keepinvestingsimplestupid.com/2019/02/01/maximizing-tsp-contributions-for-the-entire-year-when-you-deploy-to-a-combat-zone/ (Check your work against this spreadsheet)
Yes it’s ridiculously, horribly, stupidly overcomplicated. It’s poorly documented on the TSP website (if it’s documented at all). However I went three rounds with the DoD BRS office and the TSP’s CFPs to make sure my post is correct, and I’ve checked Dan’s spreadsheet.
I actually did an experiment in 2018, and front loaded my TSP using 100% of my base pay. It worked flawlessly, so there's at least n=1 with first person proof that Payroll will cut the TSP contributions off once you hit the maximum.
The good news is that the TSP computer system works, and the TSP has finally explained to CFPs and AFCs (and to me) that it works correctly for everyone younger than 50. In the last year, every time I've seen a complaint about being cut off by the TSP we were able to trace it to the servicemember's actions.
The December contribution numbers are screwed up at the end of every year due to the contribution timing and the programming, but it clears up last year’s numbers by March (and the W-2s are almost always correct).
The TSP (and most military pay offices) struggle to handle the catch-up contributions for servicemembers who are age 50 or older. The National Guard servicemembers are very annoyed.
The only caveat might be Special Pay and Incentive Pay. My Personnel Center (USCG) has some wording which indicates the individual sailor has to monitor Special Pay contributions, and cut them off as appropriate. I believe @Nords can help with this part.
For MyPay and Marine OnLine servicemembers, traditional TSP contribution percentages are limited to 92% of base pay. (7.45% goes to FICA.) Roth TSP contributions percentages are limited to 60% or 65% (for income tax withholding). Special pays and incentive pays can go to 100%. Bonus payments have the above limits, but in a combat zone can be 100%. It’s not clear to me that every MyPay checkbox for these percentages works correctly all the time.
I’ll defer to your experience on the Special Pay question... I haven’t run across it on the TSP website (yet) and I’ve never had the question from a MyPay servicemember. As far as I can tell they cut off at the elective deferral limit with no servicemember intervention required.
Yes, in theory front loading tax advantaged accounts is a good idea.
Remember that, to make a fair comparison, this isn't lump sum vs DCA but rather more in tax advantaged accounts sooner than later because the alternative (regular contributions to tax advantaged) should simply mean you're investing the extra in taxable. The reason front loading is mathematically better is the same reason that lump sum is better than DCA.
For you and anyone else considering this the key things to make sure you've researched are whether you're employer contributions requires you to match it, if so when you have to stop contributing will they true up at the end of the year, and if so what happens if you leave before the end of the year. Also consider what happens if you find a new job after you've maxed out your workplace retirement plan -- will you then miss out on the match from a new employer.
Here's a relevant blog post: https://www.madfientist.com/front-loading/
I'm not following. Basically, we will be investing $19k. We can do it in a lump sum (or a couple lump sums since it would take a few paychecks), or we can do it over 12 months. So it is lump sum vs. DCA, no? Either way, that $19k is going in to a tax advantaged account. We wouldn't take the extra money available monthly if we put in the smaller amount each month and put it in a taxable account because we want it in the TSP account.
(Also, there is no match, but I didn't think to include that in the OP. And with military, there's essentially no chance of "new employer".)
You have the $19k, so you're going to put in the tax advantaged account and invest or you're going to put it in the taxable account and invest it: you're lump sum investing it either way. DCA would be if you didn't invest it now and instead invested it slowly over time.
You’re both right for the conditions you’re stipulating. The difference is that many servicemembers are only investing in their TSP and IRA accounts, especially early in their careers. They front-load their TSP contributions while living off savings. After they’ve hit the TSP contribution limits then they shift to IRAs (at a smaller contribution limit) and spend the rest of the year rebuilding those savings. They never contribute to taxable accounts (especially if they're paying off student loans or other consumer debt). The following year they front-load their TSP contributions while living off the savings from last year.
In the bigger picture, once someone’s saving 40% of their gross income and has a few promotions then every year they’ll maximize their TSP and IRA contributions and put even more in taxable accounts. Then the discussion about tax-advantaged versus taxable accounts would be applicable.