Deployment Investing (TSP)

[dz1087]

I'll be deploying in November this year. While deployed, all pay we put into TSP is tax free, and the interest earned by that money is also tax free. I recently sold my motorcycle so the IRAs are fully funded for the year and i have a good amount left over. Right now I'm on track to max the TSP in November.

What I'm thinking about doing is stopping all contributions right now and stashing the cash in savings. Then, when i deploy, contributing most of my pay while the family lives on the savings. The way the months workout, i may not max 2015 with combat pay, but could be over max for 2016, with both years evening out to the max or over max (we can contribute 50k if deployed to a combat zone which i should get for both 15 and 16).

My question is will this be worth my time if i plan on doing a Roth conversion ladder on all this money in 12 years when i hit 20 and retire? Or should i just concentrate on contributing the most for both years for tax return purposes?

[forummm]

Nords (http://forum.mrmoneymustache.com/profile/?u=98) is a good military resource. He'll probably comment on this within a few days. You can check out his website for more info.

http://the-military-guide.com/

[Nords]

My question is will this be worth my time if i plan on doing a Roth conversion ladder on all this money in 12 years when i hit 20 and retire? Or should i just concentrate on contributing the most for both years for tax return purposes?

Yes.

If you're gonna deploy to a combat zone, that's the way to do it.

Keep in mind that your annual contribution limit to the Roth TSP is $18K no matter where you're stationed.  Your total limit for contributions from combat zone tax-excluded pay is $53K/year, so you're absolutely right that you could try to stuff $18K in your Roth TSP (both years) and another $35K in your traditional TSP (both years). 

One downside to this plan:  I've heard rumors that the MyPay/TSP websites cannot raise your Roth TSP contribution above roughly 50%-60%, while you can easily raise your traditional TSP contribution to 92%.  So your money may not end up exactly where you want it, but continue stuffing as much as you can in there and sort it out later with the Roth IRA transfer/rollover/conversion ladder process.  You'll never find a lower expense ratio than the TSP, and tax-free contributions are always good.  You'll be winning the retirement-contribution game in the third quarter, and now the only question is how high you can run up the score.

You may also want to consider deductions to the Savings Deposit Program... 10% APY for money in a federally-insured CD.

Are you interested in re-enlisting or signing a bonus contract?  Payments made for additional obligations that are incurred in a combat zone are also tax-free, and they'll make a nice lump-sum contribution to your TSP account.  I wouldn't extend your service obligation just because of the money, but if you were going to do it anyway then it's worth timing it around your deployment to the combat zone.

To everyone else who's admiring these great military benefits:  remember that the OP is deploying to a combat zone.  There's a reason DoD is being so nice.  In my opinion, it's far better to contribute a "puny" $18K to a retirement account than to have to risk paying the price for the chance to contribute a studly $53K.

[dz1087]

Yeah, I'm doing traditional TSP anyway, so hopefully there tax burden will be low this year anyway.  I'll have to actually run some numbers to see how close I'll get to qualifying for EIC this year with both scenarios. It may would probably be better to get EIC than to get an extra thousand of tax free since i will invest the EIC if i qualify.

[kendallf]

To everyone else who's admiring these great military benefits:  remember that the OP is deploying to a combat zone.  There's a reason DoD is being so nice.  In my opinion, it's far better to contribute a "puny" $18K to a retirement account than to have to risk paying the price for the chance to contribute a studly $53K.

Hell, I'd be happy if we paid that in absolute bonus for combat deployment.  Thank you for your service!

[MishMash]

One thing to note on that 53k limit...you can only contribute up to that 53k while deployed, the day you come home you can't contribute anymore if you have hit the 18k max for the year.

[Travis]

I just hit the limit on contributions for 2015 and noticed something odd on my LES.  I had $900 returned to me for December because I hit my contribution limit even though my LES says I only contributed $15k this year.  The TSP website says I contributed $15k traditional and $3k ROTH.  I was deployed for most of 2014 and January of 2015.  I put as much as I could towards the ROTH TSP and maxed my traditional as well ($30k total for 2014).  Contributing to my ROTH TSP for January was rolled into my limit for traditional contributions for 2015.  I thought because I was deployed that month I could contribute the $3000 to the ROTH in addition to the $1500 for traditional.  Apparently there's a cut off in the system that decided both of those contributions would go against my $18k limit.

[Nords]

I just hit the limit on contributions for 2015 and noticed something odd on my LES.  I had $900 returned to me for December because I hit my contribution limit even though my LES says I only contributed $15k this year.  The TSP website says I contributed $15k traditional and $3k ROTH.  I was deployed for most of 2014 and January of 2015.  I put as much as I could towards the ROTH TSP and maxed my traditional as well ($30k total for 2014).  Contributing to my ROTH TSP for January was rolled into my limit for traditional contributions for 2015.  I thought because I was deployed that month I could contribute the $3000 to the ROTH in addition to the $1500 for traditional.  Apparently there's a cut off in the system that decided both of those contributions would go against my $18k limit.

Military blogger Kate Horrell (Paycheck Chronicles) noted a similar problem on her (active duty) spouse's LES:
http://paycheck-chronicles.military.com/2015/12/30/december-les-might-wrong/

In Jan 2015 both DFAS and the TSP board had just implemented a software change on how Roth TSP contributions could be designated from paychecks, and that apparently led to a glitch in the LES tracker.  The "good" news is that the TSP's records are probably correct, and there'll be some sort of reconciliation in January or February.

[Travis]

I just hit the limit on contributions for 2015 and noticed something odd on my LES.  I had $900 returned to me for December because I hit my contribution limit even though my LES says I only contributed $15k this year.  The TSP website says I contributed $15k traditional and $3k ROTH.  I was deployed for most of 2014 and January of 2015.  I put as much as I could towards the ROTH TSP and maxed my traditional as well ($30k total for 2014).  Contributing to my ROTH TSP for January was rolled into my limit for traditional contributions for 2015.  I thought because I was deployed that month I could contribute the $3000 to the ROTH in addition to the $1500 for traditional.  Apparently there's a cut off in the system that decided both of those contributions would go against my $18k limit.

Military blogger Kate Horrell (Paycheck Chronicles) noted a similar problem on her (active duty) spouse's LES:
http://paycheck-chronicles.military.com/2015/12/30/december-les-might-wrong/

In Jan 2015 both DFAS and the TSP board had just implemented a software change on how Roth TSP contributions could be designated from paychecks, and that apparently led to a glitch in the LES tracker.  The "good" news is that the TSP's records are probably correct, and there'll be some sort of reconciliation in January or February.

I'm not as concerned about what the LES says, but rather feeling like I was cheated out of a contribution for this year.  Any idea how this would play out if a deployment was split evenly between two calendar years?

[act0fgod]

I'm not as concerned about what the LES says, but rather feeling like I was cheated out of a contribution for this year.  Any idea how this would play out if a deployment was split evenly between two calendar years?

There are lots of ways TSP contributions could be split if you are deployed from Oct-Mar.

The TSP system is funky in lots of ways.  I know there are a number of things I would change if I ran the TSP.  Like a lot of things in the military the rules are the rules and timing is important.  The portion you contributed in Jan still counts toward your 18k contribution limit it just happens to be tax free.

From my perspective being deployed at the end of the year is financially a better deal than being deployed early in the year.

Lets take two scenerios.  One where you deploy Jan-July and one where you deploy July-Dec.

In the Jan-July deployment you contribute to your TSP and everything is tax free.  If your pay allows you can potentially put in more than 18k (the first 18k can be roth or traditional but anything over must be traditional) but when you return home you can't contribute anything more unless you did not reach 18k while deployed.

In the July-Dec deployment you can contribute 18k (roth or traditional) from Jan-July and then from July-Dec you can continue to contribute when deployed (up to an additional 35k to the traditional).

Contributing to my ROTH TSP for January was rolled into my limit for traditional contributions for 2015.  I thought because I was deployed that month I could contribute the $3000 to the ROTH in addition to the $1500 for traditional.  Apparently there's a cut off in the system that decided both of those contributions would go against my $18k limit.

Could you reiterate the question here?

Reading your question it seems like you were hoping the $1500 you put into the traditional TSP during Jan 2015 would not impact the 18k TSP limit, but it does.  Compound this with the glitch posted by Nord and it is really looking messed up.  I'm willing to bet what the TSP site shows, 3k roth and 15k traditional, is correct.

[Travis]

Could you reiterate the question here?

Reading your question it seems like you were hoping the $1500 you put into the traditional TSP during Jan 2015 would not impact the 18k TSP limit, but it does.  Compound this with the glitch posted by Nord and it is really looking messed up.  I'm willing to bet what the TSP site shows, 3k roth and 15k traditional, is correct.

I was deployed APR14-JAN15. I contributed $3000 per month towards the Roth in addition to the $1500 I was already sending to the traditional.  That worked fine for 2014 with over $30k contributed for the year.  Come Jan 2015 I contributed $3000 and $1500 for that month thinking I would finish the calendar year with $3000 Roth and $18000 traditional contributed for the year, but the system stopped me at $18k total. I was hoping the $3000 wouldn't count towards the yearly limit.

[MishMash]

Could you reiterate the question here?

Reading your question it seems like you were hoping the $1500 you put into the traditional TSP during Jan 2015 would not impact the 18k TSP limit, but it does.  Compound this with the glitch posted by Nord and it is really looking messed up.  I'm willing to bet what the TSP site shows, 3k roth and 15k traditional, is correct.

I was deployed APR14-JAN15. I contributed $3000 per month towards the Roth in addition to the $1500 I was already sending to the traditional.  That worked fine for 2014 with over $30k contributed for the year.  Come Jan 2015 I contributed $3000 and $1500 for that month thinking I would finish the calendar year with $3000 Roth and $18000 traditional contributed for the year, but the system stopped me at $18k total. I was hoping the $3000 wouldn't count towards the yearly limit.

This is what I was talking about in my original reply.  This happened last deployment to DH...after a crap ton of run around DFAS and the advisers at the TSP it turns out that you can only contribute above 18k a year IF YOU ARE STILL DEPLOYED.  So, you were deployed in January, but weren't for the rest of the year, so you are subject to the 18k/year limit, the 53 limit only applies for those months that you are deployed.  So, if you are deployed you can contribute the 50+k, however, if you come back any time in the given year, and are already over 18k, they won't allow you to contribute another dime for the rest of the year.  Same applies if you were only deployed one month of the year, that amount counts towards your 18k max.