Author Topic: TSP / BRS / Continuation Pay / Tax Free Advice  (Read 1387 times)


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TSP / BRS / Continuation Pay / Tax Free Advice
« on: January 20, 2018, 10:14:24 PM »
MMM Community -

Looking for recommendations/guidance on how to best maximize financial opportunities as a byproduct of an overseas military assignment. I tried to capture the highlights/inputs below - please let me know if I need to clarify anything. 

Current Financial Snapshot:

TSP: $155K (currently 100% TSP Roth contributions; gov matching must go to TSP Trad. via BRS)
IRA: $78K (max it out every year @ Vanguard)
Index Funds: $17K (@ Vanguard)
Cash: $5K
Only debt is mortgage @ 3% (balance: $338K; $567K value per Zillow)
- currently rented out/breaking even; on accelerated mortgage payments
Move OCONUS in mid-2018
All pay will be tax-free; I’m resident of a state that has no state income tax
Est monthly pay $8600 (rough break-down below); est annual pay $103,200
Monthly Base Pay: $7050
Monthly COLA: $1300
Monthly BAS: $250
BAH = OHA (I have to spend it all so no savings there)
No family sep

Goals - I am projected to span three “years” for tax purposes (mid 2018 - 2019; 2019; 2020 - mid 2020)

TSP: OCONUS limit is $52K/year; first $17.5K to Roth TSP, remainder must go to Traditional TSP. NOTE: I opted into the BRS, so I get gov matching into my Traditional TSP account. 
Roth IRA: $5,500
SDP: $10K/year (need to verify this location is SDP eligible...)
Any monies beyond that - directed towards Index funds @ Vanguard or apply to mortgage balance - thoughts?

Other notes: Since I opted into BRS, I *should* get a mid-career continuation pay at some point while I am OCONUS (years 10-12 of my mil service) and theoretically avoid any tax on that pay.

Continuation Pay can now be given anywhere from the 8 – 12 year point in a servicemember's career instead of the original time of only 12 years. "Active component service members enrolled in the BRS will be eligible for a cash incentive of 2.5 to 13 ($17,620 to $91,676) times their regular monthly basic pay.” Right now, it’s set at 2.5x base pay ($17,620). So I will receive the continuation pay bonus in a tax-free setting but, based on the below, it seems like it may be better to spread TSP contributions over the course of a year - correct?

Can continuation pay be contributed to the Thrift Savings Plan (TSP)?

Yes, bonuses (such as continuation pay), as well as incentives and special pay can all be contributed to your TSP. It is important to note, each year the IRS determines the maximum amount you can contribute to tax-deferred savings plans like the TSP ($18,000 for calendar year 2017). You should keep the annual contribution limit in mind when deciding how much you will contribute to your TSP account from your continuation pay. If you reach the annual maximum too quickly, you could lose some government matching contributions, because you only receive government matching contributions on the first 5% of your basic pay that you contribute each pay period. If you reach the annual limit before the end of the year, your contributions (and consequently your government matching contributions) will stop. If you contribute some or all of your continuation pay to your TSP and go over the IRS limit, be aware it could result in you meeting the IRS limit earlier in the year, causing you to lose out on additional government matching contributions.

Any other items I missed or should anticipate? Thank you much.


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Re: TSP / BRS / Continuation Pay / Tax Free Advice
« Reply #1 on: January 22, 2018, 06:52:04 AM »
I'm confused by the $52k/year and no taxes comments, unless you're going to a "combat/tax free" area for a special duty assignment or something similar.  The normal OCONUS locations require you to pay federal taxes and have the same $18.5k/year contribution limits as stateside.  SDP also isn't possible unless you're in one of those locations.

I'm also interested in why you switched to the BRS.  Are you planning on getting out early, or do you think it may be difficult to stay in?

Last, if you get a bonus then I suggest contributing that towards your traditional account due to the massive tax savings.