The 2018 Thrift Savings Plan (TSP) contribution limits have been announced. These tax-advantaged accounts have limits on the amount of money you can contribute. This is one of the reasons it makes sense to contribute as much as you can even when money is tight, because you can’t just contribute an unlimited amount once you’re making more.
There are two different types of limits, and then each limit has an additional amount that is only available to those 50 or older. (They’re called catch-up contributions.)
Elective Deferral Limit $18,500
The first limit is the elective deferral limit. It’s the limit on the amount that may be contributed by a service member’s taxable pays. It’s also the limit for how much you can put into a Roth IRA for the year.
If you are age 50 or older, you get to contribute an additional $6,000, giving you an elective deferral limit of $18,500.
This limit does not include the government’s contributions to your TSP plan if you opt-in to the new Blended Retirement System. They come under the next limit.
Annual Addition Limit $55,000
The annual addition limit represents the total amount of money that can be contributed to your TSP from any source, including contributions from income earned in a combat zone tax exempt area and the government’s automatic and matching contributions if you are using the new Blended Retirement System (BRS.)
The same $6,000 additional limit for people aged 50 or older applies to this annual addition limit
Side note: You may not put more than the $18,500 elective deferral limit into a Roth TSP account, even if it is earned in a tax-free combat zone.
How To Calculate Your Contributions
If you’re trying to max out your TSP contributions, I have bad news and good news.
The good news is that if you only contribute military pay to a military TSP, and you don’t spend time a tax-free combat zone, the Defense Finance and Accounting Service (DFAS) does a good job of curtailing contributions once you hit the limit.
However, there are several ways this can go wrong.
If you’re saving to another TSP account, a 401(k), a 403(b), or any similar account from non-military employment, you are responsible for making sure your total contributions don’t exceed the limits.
It can also be hard to figure out your contributions because they have to be figured as percentages of income. You can designate portions of base pay, special pays and bonuses, but the math starts getting hard the more different pays you’re using. Throw in a mid-year time-in grade promotion, add or start special pays, or move in and out of a combat zone, and the math becomes impossible.
Lastly, if you spend time in a tax-free combat zone situation, keep a careful eye on your Leave and Earnings Statement (LES) and your TSP account statements to ensure that contributions are accurately reported and coded. This is particularly important as you exceed the elective deferral limit and move into the annual addition limit area.
Doing The Math
There are a couple of ways to attack this problem. If you’re trying to meet the elective deferral limit of $18,500 per year, or $1,541.66 per month, out of your base pay. If your pay will be the same for the whole year, take your base pay (from the 2018 pay charts) and divide ($1,541.66/base pay) to get a percentage.
If you have a mid-year change in base pay, you can either:
- figure out how your total yearly compensation and divide by your total year contribution, OR
- contribute a set contribution for the first half of the year, and then re-calculate your contributions after your pay change to fulfill the remaining allowable contribution.
If math isn’t your thing, it would be worth bothering a friend who is good with numbers, your command’s financial person, or a professional at your family service center. As I said, DFAS will probably catch an over-contribution, but it’d be sad if you were planning a certain contribution and got the math wrong and under-contributed.
TSP is a great tool, and the only take-with-you retirement savings for those who don’t stay in the military until retirement. With industry-low fees and a wide variety of investment choices, I encourage everyone to take full advantage of this awesome opportunity. And if you’re in the new Blended Retirement System, TSP is an even more important part of your retirement plan. Understand it, and use it to your advantage.
By Kate Horrell, Military.com
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