Author Topic: Deployed TSP contributions: rebalance?  (Read 9834 times)

Travis

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Deployed TSP contributions: rebalance?
« on: July 16, 2014, 02:32:24 PM »
Since I'm deployed this year I'm allowed to go far over the $17.5k contribution limit to my TSP.  I'm increasing the allocation going to there, but I realized that with my AA I'd be putting more towards bonds than I normally would.  Between TSP and Vanguard I have an 80/20 stock/bond AA with all the bonds in TSP.  My monthly contributions are currently 75/25, and if I move the extra money I'm making towards TSP my contributions will look more like 70/30.  Some have recommended I suspend my Vanguard contributions this year and put everything into TSP up to the max.  I'm trying to figure out if this is a prudent move and if I should rebalance my TSP allocation to keep with my 80/20 AA?

sol

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Re: Deployed TSP contributions: rebalance?
« Reply #1 on: July 17, 2014, 10:46:07 AM »
Generally speaking, the TSP is the best deal going for active duty military personnel. 

If you're deployed to a combat zone and thus earning tax free income, consider using the Roth TSP instead of the traditional TSP. 

And yes, I'd cut back your bond contributions to try to move back towards your target AA, even if that means new contributions have to be 95/5 stocks/bonds.

Nords

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Re: Deployed TSP contributions: rebalance?
« Reply #2 on: July 20, 2014, 12:18:39 AM »
I'm trying to figure out if this is a prudent move and if I should rebalance my TSP allocation to keep with my 80/20 AA?
Yes and yes.  If your stock allocation includes small-cap and international equities, then the TSP expense ratios for those assets are particularly cheap.  I have our entire TSP shares in the "S" fund.

If you're deployed to a combat zone and thus earning tax free income, consider using the Roth TSP instead of the traditional TSP. 
Military contributions to the Roth TSP are still limited to $17.5K no matter what the source of the funds, but yes it's smart to maximize the Roth TSP limit before contributing the other $34.5K to the conventional TSP.

From https://www.tsp.gov/planparticipation/eligibility/contributionLimits.shtml:
Quote
If you are a member of the uniformed services, you should know that Roth contributions are subject to the elective deferral limit ($17,500 for 2014 and $17,500 for 2013) 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.

Travis

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Re: Deployed TSP contributions: rebalance?
« Reply #3 on: July 20, 2014, 03:33:49 AM »
I'm trying to figure out if this is a prudent move and if I should rebalance my TSP allocation to keep with my 80/20 AA?
Yes and yes.  If your stock allocation includes small-cap and international equities, then the TSP expense ratios for those assets are particularly cheap.  I have our entire TSP shares in the "S" fund.

If you're deployed to a combat zone and thus earning tax free income, consider using the Roth TSP instead of the traditional TSP. 
Military contributions to the Roth TSP are still limited to $17.5K no matter what the source of the funds, but yes it's smart to maximize the Roth TSP limit before contributing the other $34.5K to the conventional TSP.

From https://www.tsp.gov/planparticipation/eligibility/contributionLimits.shtml:
Quote
If you are a member of the uniformed services, you should know that Roth contributions are subject to the elective deferral limit ($17,500 for 2014 and $17,500 for 2013) 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.

I've been reading about the Roth TSP all day and there are a few things I haven't been able to answer.  If I stop contributing to my conventional TSP and spend the next few months maxing out a Roth, is that money in a separate pot or does it accumulate with my conventional TSP?  After I get home from this deployment do I just stick with the Roth TSP or can I contribute to both?

Nords

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Re: Deployed TSP contributions: rebalance?
« Reply #4 on: July 20, 2014, 02:57:41 PM »
I've been reading about the Roth TSP all day and there are a few things I haven't been able to answer.  If I stop contributing to my conventional TSP and spend the next few months maxing out a Roth, is that money in a separate pot or does it accumulate with my conventional TSP?  After I get home from this deployment do I just stick with the Roth TSP or can I contribute to both?
One caveat-- make sure your deployment still qualifies as a combat zone.  There have been a few rules changes in the last six months, and I haven't kept up with them.  You'd want to see the latest message that says your deployment area still falls within the dates & boundaries. 

Let me clarify that we're discussing the differences between contributions to the conventional TSP and the Roth TSP.  (Other posters have confused the Roth TSP with the Roth IRA.)  Regardless of what you decide to do with your contributions, either conventional TSP or Roth TSP, you're going to try to maximize the contributions because the combat zone deployment gives you a new limit of $52K in 2014.  It's a great financial opportunity, but since it's in a combat zone then hopefully you never get this opportunity ever again.  Because of the higher contribution limit, I'd try to max out the TSP contributions (and the Savings Deposit Program contributions) before putting anything into Roth IRAs.  Of course if you can maximize your TSP, SDP, and IRA contributions all in the same year then that's even better, but that's rarely achievable.

Your TSP account will track your contributions to both the conventional TSP and the Roth TSP.  In addition, your TSP account will track how much of your contributions to your conventional TSP came from a combat zone (tax-free).  The advantage of maxing out your Roth TSP with contributions from a combat zone is that you won't have to pay any taxes on the contributions (because your pay is free of tax) and since it's a Roth TSP you won't have to pay any taxes on the (regular) withdrawals. 

When you get home from the deployment and resume contributions with "normal" pay, your contributions to the Roth TSP will be taxed.  If you did not maximize your Roth TSP contributions while you were on deployment, it might still make sense to contribute to the Roth TSP after you return home because you're going to have very low taxes in 2014 (most of your income was tax-free).  You'll pay almost no tax on Roth TSP contributions now and (years later) you'll pay no taxes on withdrawals.

So try to max out the Roth TSP contributions (and the SDP contributions) while you're deployed.  When you get home, keep going to maximize the Roth TSP contributions (if you haven't already done so) and then continue to contribute to the conventional TSP.  (You may be home from deployment, but the $52K limit applies to all of calendar year 2014.)  If you manage to hit the $52K contribution limit to both your conventional TSP and your Roth TSP, then you can contribute to your Roth IRA. 

The biggest problem you have with this scheme is juggling all the various accounts and contribution limits in myPay and your TSP account.
« Last Edit: July 28, 2014, 12:35:26 PM by Nords »

Travis

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Re: Deployed TSP contributions: rebalance?
« Reply #5 on: July 21, 2014, 02:15:56 AM »
Nords, thanks for explaination.  I'm still in a tax free zone, but the IDP was taken away this year.  We are still eligible for SDP (which I already maxed out) and the extended TSP contributions though.  I think I have it all figured out, and you're right that there is a lot of juggling involved. I spent the weekdend staring at a spreadsheet and calculator and it made my head spin.

ramenboi

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Re: Deployed TSP contributions: rebalance?
« Reply #6 on: July 21, 2014, 10:29:24 AM »
I'm in a similar situation as Travis but I have a civilian job that I will be returning to at the end of this deployment.  The USERRA law will allow me to make a one time catch up contribution with employer match to my 401k upon my return for the length of time I was in Afghanistan.  Do you happen to know if the 52k contribution limit also includes contributions to civilian 401ks or is it completely limited to the TSP? 

Nords

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Re: Deployed TSP contributions: rebalance?
« Reply #7 on: July 21, 2014, 01:26:30 PM »
Nords, thanks for explaination.  I'm still in a tax free zone, but the IDP was taken away this year.  We are still eligible for SDP (which I already maxed out) and the extended TSP contributions though.  I think I have it all figured out, and you're right that there is a lot of juggling involved. I spent the weekdend staring at a spreadsheet and calculator and it made my head spin.
Sounds good.  If your spreadsheet is making you dizzy (or nauseous) then you know you're on the right track!

Ryan Guina (one of my blogging mentors) has a large archive of TSP articles:  http://themilitarywallet.com/category/tsp/  Scroll through all of them or search for the "Roth TSP" keyword to see if you're overlooking anything.

I'm in a similar situation as Travis but I have a civilian job that I will be returning to at the end of this deployment.  The USERRA law will allow me to make a one time catch up contribution with employer match to my 401k upon my return for the length of time I was in Afghanistan.  Do you happen to know if the 52k contribution limit also includes contributions to civilian 401ks or is it completely limited to the TSP? 
I'm much more familiar with the TSP than with a 401(k), and some might claim that I'm already on the perimeter of my circle of competence.  But my read of the table at
https://www.tsp.gov/planparticipation/eligibility/contributionLimits.shtml
is that the $52K limit is the total of the contributions to all types of tax-deferred accounts.  If you're really curious then you could dig into IRS code section 415(c) for the details.

Again, unless you have a really stellar employer match coupled with 401(k) funds charging extremely low fees, you might be better off maxing the TSP first. 

dhlogic

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Re: Deployed TSP contributions: rebalance?
« Reply #8 on: July 28, 2014, 11:36:48 AM »
(You may be home from deployment, but you the $52K limit applies to all of calendar year 2014.)

Hello Nords,

Do you have a reference for the above statement? I was deployed for a portion of this year and hit the elective deferral for the Roth TSP of $17,500 and then switched all of my contributions to the Traditional TSP. This allowed me to contribute several more thousand above the normal limit of $17,500. When I returned stateside, I noticed my deduction stopped and I have a message on my LES that now says MAXIMUM TSP CONTRIBUTION AMOUNT REACHED FOR CURRENT YEAR. I contacted my pay office and the TSP and both of them say I can't contribute any more towards the $52,000 as I am no longer in a CTZE status.

I would appreciate any additional information you might have regarding this. Thank you.

houseofski

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Re: Deployed TSP contributions: rebalance?
« Reply #9 on: September 06, 2014, 07:12:19 AM »
I am going through the same issue.  Did you get any feedback or a definitive reference?  Thank you.

Nords

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Re: Deployed TSP contributions: rebalance?
« Reply #10 on: September 06, 2014, 10:24:19 AM »
(You may be home from deployment, but you the $52K limit applies to all of calendar year 2014.)

Hello Nords,

Do you have a reference for the above statement? I was deployed for a portion of this year and hit the elective deferral for the Roth TSP of $17,500 and then switched all of my contributions to the Traditional TSP. This allowed me to contribute several more thousand above the normal limit of $17,500. When I returned stateside, I noticed my deduction stopped and I have a message on my LES that now says MAXIMUM TSP CONTRIBUTION AMOUNT REACHED FOR CURRENT YEAR. I contacted my pay office and the TSP and both of them say I can't contribute any more towards the $52,000 as I am no longer in a CTZE status.

I would appreciate any additional information you might have regarding this. Thank you.

I am going through the same issue.  Did you get any feedback or a definitive reference?  Thank you.
I'm pretty sure I did answer this (because I appear to be wrong!), but I don't know what happened to the post.

I interpret the TSP's website table differently than the way they're executing the program, but their policy is the only opinion that matters.  Oddly enough for a deployment stretching across two tax years, that would mean a servicemember could still try to contribute $52K in each tax year of the deployment. 

And I guess it's all the more reason to maximize the TSP contributions during a deployment. 

dhlogic

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Re: Deployed TSP contributions: rebalance?
« Reply #11 on: September 07, 2014, 12:41:50 PM »
I wish your interpretation was true haha.

Some of the wording they use on the TSP site isn't as clear as it could be, but I found this document that lays it out pretty simply.

https://www.tsp.gov/PDF/bulletins/13-u-3.pdf

Quote
TSP participants who have a uniformed services TSP account are subject to the annual addition
limit under section 415(c) of the IRC. This limit applies when a participant contributes to his or
her uniformed services TSP account while deployed in a designated combat zone.

The annual additional limit only applies while you actually deployed in a combat zone. So once you leave, you're done!

Nords

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Re: Deployed TSP contributions: rebalance?
« Reply #12 on: September 07, 2014, 01:20:05 PM »
I wish your interpretation was true haha.

Some of the wording they use on the TSP site isn't as clear as it could be, but I found this document that lays it out pretty simply.

https://www.tsp.gov/PDF/bulletins/13-u-3.pdf

Quote
TSP participants who have a uniformed services TSP account are subject to the annual addition
limit under section 415(c) of the IRC. This limit applies when a participant contributes to his or
her uniformed services TSP account while deployed in a designated combat zone.

The annual additional limit only applies while you actually deployed in a combat zone. So once you leave, you're done!
Ah, good, thanks for the link.  I'll add that to a couple of my TSP posts.

That still sounds overly conservative of the TSP board-- I don't think the IRS cares about the precise dates.  But I understand what happens when a policy has to go through legal review.

trudat

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Deployed TSP contributions
« Reply #13 on: April 13, 2015, 11:17:41 AM »
Bumping an old thread because I'm still a little unclear about the policy.

Let's say my monthly LES income is $7500. If I'm scheduled for a six month deployment that crosses to fiscal years (Oct-Mar), do both years have the $52K additional annual limit (with Roth TSP being limited to 17500), or just $52K when I'm deployed? Total income during those six months would be $45K (6x7500), meaning that I would be able to max the Roth TSP (17500) with 27500 going to regular TSP without reaching the additional annual limit.

For instance, say I contribute to regular TSP up to the 17500 annual limit prior to deployment, then when I'm deployed I switch that over to max the Roth TSP (17500 again, Oct-Dec), with any leftover contributions (~$5000) going to the remaining $52K for that fiscal year for a total of $40K for year X. However at the start of the new year, since I haven't reached any limits for Roth TSP, continue to keep monthly pay as Roth TSP (Jan-Mar), then when returned from deployment, contribute up the the $52K limit?

Essentially, a total of 6 months ($35K) of tax-free combat pay going into Roth TSP (and $10K going to regular TSP thru carry-over) because the deployment spans 2 fiscal years with any remaining contributions ($69K) spread out over the remainder of the non-deployed period going to regular TSP. In the first year my monthly pay for 3 months (Oct-Dec) plus the preceding 17500 is not likely not reach the $52K limit (only $40K), however, the following year it will be very possible to reach the 52K limit.

First priority is getting as much tax-free pay into the Roth TSP limit, then maximizing total savings. Thanks any help and clarification.

dhlogic

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Re: Deployed TSP contributions
« Reply #14 on: April 13, 2015, 05:44:46 PM »
For instance, say I contribute to regular TSP up to the 17500 annual limit prior to deployment, then when I'm deployed I switch that over to max the Roth TSP (17500 again, Oct-Dec), with any leftover contributions (~$5000) going to the remaining $52K for that fiscal year for a total of $40K for year X. However at the start of the new year, since I haven't reached any limits for Roth TSP, continue to keep monthly pay as Roth TSP (Jan-Mar), then when returned from deployment, contribute up the the $52K limit?

The elective deferral limit of $18,000 for 2015 is the combined total of traditional and roth contributions. Roth contributions are subject to the elective deferral limit even if they are contributed from tax-exempt pay.  If you want to contribute tax-exempt pay toward the annual additions limit ($53,000 for 2015), you will have to elect traditional contributions for any amount over the elective deferral limit.

So in your scenario, once you get to $18,000 prior to deployment, there is no "switching over" to the Roth option, you can only make traditional contributions beyond that amount.

After the calendar year, you can start off with Roth contributions and max out the 18,000 for that year with any remaining going in as traditional contributions. Based on your income, it looks like you'll only exceed the 18,000 by $3-4k before your deployment ends. Once that happens (no longer in a deployed status) you won't be able to make any additional contributions until next year as you'll be over the $18,000 threshold.

trudat

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Re: Deployed TSP contributions: rebalance?
« Reply #15 on: April 14, 2015, 09:24:30 AM »
So basically there is no incentive to contribute to TSP prior to deployment because that will lock-out the potential for tax-free Roth TSP contributions. But once I'm deployed, I should just keep my my TSP contributions set to the Roth option and when I max it out at $18K, it will switch it over to regular TSP contributions up to the additional annual limit. The question then becomes if it switches over at the end of the calendar year and it has converted to regular TSP contributions, will my January pay go back to the Roth TSP option automatically, or would I have to reset it?

Correct me if I'm wrong, but there's no tax advantage to using the combat zone tax exclusion pay into the regular TSP since that money is only taxed on the way out anyway. In theory, couldn't I max out the Roth TSP option (18K) then a civilian Roth ($5500) with my tax-free income? Since you're able to contribute to a civilian Roth up until April 15th, how would the IRS know which money was tax-free and which wasn't? Would they be able to go back and look at the dates of contribution?

Otherwise, I'd be able to put the full 6 month pay into Roth TSP ($18K) and vanguard Roth ($5500) for two tax years for a total of $47K tax-free roth contributions (TSP + vanguard combined). I can use the remainder of the year (April-Dec) to contribute to regular TSP up the annual additional limit (52K). Thanks.

dhlogic

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Re: Deployed TSP contributions: rebalance?
« Reply #16 on: April 14, 2015, 07:14:39 PM »
So basically there is no incentive to contribute to TSP prior to deployment because that will lock-out the potential for tax-free Roth TSP contributions.

When you get to 18k prior to the deployment, once the deployment begins you can go above the limit until December. That alone is a awesome advantage. I wish I could do that every year.

But once I'm deployed, I should just keep my my TSP contributions set to the Roth option and when I max it out at $18K, it will switch it over to regular TSP contributions up to the additional annual limit. The question then becomes if it switches over at the end of the calendar year and it has converted to regular TSP contributions, will my January pay go back to the Roth TSP option automatically, or would I have to reset it?

I assume you use MyPay to manage your TSP contributions? With MyPay there is no "automatic switching". It doesn't do anything without you telling it what to do first. If you have 100% of your basic pay going into the Roth TSP and it hits the limit, it doesn't automatically start putting the rest into the Traditional TSP. It will basically do nothing until next year when you are eligible to make Roth contributions again. You have to tell it when and what to do.

Correct me if I'm wrong, but there's no tax advantage to using the combat zone tax exclusion pay into the regular TSP since that money is only taxed on the way out anyway. In theory, couldn't I max out the Roth TSP option (18K) then a civilian Roth ($5500) with my tax-free income? Since you're able to contribute to a civilian Roth up until April 15th, how would the IRS know which money was tax-free and which wasn't? Would they be able to go back and look at the dates of contribution?

There is a tax advantage. The TSP keeps track of your tax-exempt contributions. When you contribute them to the Traditional TSP, your contributions will be tax-free at withdrawal but your earnings will be subject to tax. For the civilian Roth, the IRS doesn't know, but it doesn't make a difference. You already received the benefit of lower tax liability by having your tax-exempt pay classified as tax-exempt when you earned it. You will not pay federal income tax on it at the end of the year. It doesn't make any difference if that money sits in your bank account for a couple of months before it gets invested into a Roth IRA.

Otherwise, I'd be able to put the full 6 month pay into Roth TSP ($18K) and vanguard Roth ($5500) for two tax years for a total of $47K tax-free roth contributions (TSP + vanguard combined). I can use the remainder of the year (April-Dec) to contribute to regular TSP up the annual additional limit (52K). Thanks.

You cannot use the remainder of the year to contribute to the Traditional TSP because you are no longer in a designated combat zone and are now subject to the Elective Deferral Limit again, which is 18k.

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Re: Deployed TSP contributions: rebalance?
« Reply #17 on: November 05, 2015, 08:13:57 AM »
Hey all, going to be in a similar situation in 2016-2017. Not sure if i should've started a new post or not... (Me, wife..husband, deployed)

For me, i'm assuming my husband to be deployment to be 6 months in 2016 (july-dec) and 6 in 2017(jan-june)

So, for jan-june of 2016, i should try and max out the Roth tsp ($18k) then once deployed, july-dec of 2016, try and max out Traditional tsp ($35k). Is that the best order to do this? Because this would make the total taxable pay for 2016 at "half" the amount (due to it being tax exempt for half the year)
The taxable income is normally ~$88k per year. So, would that make our taxable income for 2016 $44k???

I'm asking because i might want to "rollover" (whatever the correct term is, i want to "pay tax") on our old Traditional IRA to make them Roth and pay the tax, which would be $0/very low, due to a family of 5 (3kids) But i would need to get us to the correct AGI to make this possible.

Thanks for all your help!!!!

dhlogic

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Re: Deployed TSP contributions: rebalance?
« Reply #18 on: November 05, 2015, 04:33:16 PM »
Hey all, going to be in a similar situation in 2016-2017. Not sure if i should've started a new post or not... (Me, wife..husband, deployed)

For me, i'm assuming my husband to be deployment to be 6 months in 2016 (july-dec) and 6 in 2017(jan-june)

So, for jan-june of 2016, i should try and max out the Roth tsp ($18k) then once deployed, july-dec of 2016, try and max out Traditional tsp ($35k). Is that the best order to do this?

For the July to December 2016 portion, there is no proper "order". If you reached the $18,000 prior to his deployment using the traditional TSP, Roth TSP, or a combination, the *only* remaining option to contribute up to the $53,000 limit is Traditional TSP.

Because this would make the total taxable pay for 2016 at "half" the amount (due to it being tax exempt for half the year)
The taxable income is normally ~$88k per year. So, would that make our taxable income for 2016 $44k???

I don't know the exact specifics on your income, but yes, you can expect a significant decrease in taxable income if you contribute all his pay via Traditional TSP as it will not only be shielded from federal taxes (as it would in a combat zone whether contributing or not), but also social security and medicare as well.

I'm asking because i might want to "rollover" (whatever the correct term is, i want to "pay tax") on our old Traditional IRA to make them Roth and pay the tax, which would be $0/very low, due to a family of 5 (3kids) But i would need to get us to the correct AGI to make this possible.

Thanks for all your help!!!!

Recharacterization is what it's called and yes, this might be a good opportunity to do that depending on your specifics.
« Last Edit: November 05, 2015, 04:39:42 PM by dhlogic »