TSP Contribution Limits - My Mistake is Your Lesson Learned

[mbrogz3000]

Well, I made mistake, and I thought I'd share this story, and some insight, with everyone so that you can all avoid making the same mistake.

I thought there was an issue with my recent paycheck for the TSP and Roth contributions (ahem, deductions). The normal % I had set up for TSP (for years now) was deducted from my paycheck, but the full % that I have set up for Roth was NOT deducted. Only a weird % of the Roth was deducted.

Well, after re-reading the publication on TSP.gov regarding contribution limits...I realized I hit the COMBINED contribution limit for this year, which was my mistake. The contribution limit is the combined total between YOUR TSP contribution and Roth contribution, which is a total of $18,000 (for 2015). The math doesn't lie on my pay stub either.. adding my TSP and Roth contribution dollar YTD amounts equals exactly $18k. Thankfully, agency matching is not added into this sum when accruing the $18k limit.

Which brings me to the next topic. Since I was so proactive with saving and living a grade or two or three below my means and thinking I'm doing the right thing for my wife and myself, I'll now be MISSING OUT on my AGENGY MATCHING from now until the end of the year. I've done the full math, and since we're late in the calendar year, its not that substantial of an amount (I can gain or lose this amount in a daily market hiccup)...but its certainly annoying and unfair knowing that I'm missing out on a significant part of the FERS benefit. For others though experiencing the same problem, it could be detrimental. It certainly feels the equivalent of seeing $100 on the ground, and simply not being able to bend over to pick it up.

Moral of the story is, be cognizant of the TSP contribution limits for any year and your actual contribution. If you are in a position to save the maximum for the year (strive for this maximum!) then set aside a dollar amount contribution for TSP and ROTH contribution each pay period rather than a percentage. This will guarantee you'll still earn your 1%+4% TSP Match from your agency throughout the year.

For those that don't know how the Roth deduction works...the % value deduction is calculated from your Gross, then taken out of your Net income. So if you Gross $1000 per payperiod, and contribute 5% into Roth, you will put $50 into Roth TSP, which will be taken off the approximate netted $700 after-tax money (this is hypothetical net amount), leaving you with $650.

 

[Cactus]

Sorry to hear of your plight, mbrogz3000.

Since you started this thread as a lesson learned I thought I would add another warning for a potential gotcha.

If you are 50 or older the contribution limit to a 401K type plan like our TSP is increased to $24,000 (2015 & 2016). Unfortuantely my agency treats the extra $6000 as a seperate contribution called the catch-up contributiuon that really complicates matters.

You can contribute whatever you want to the catch-up contribution and it will automatically stop when it reaches $6000.

The regular contribution is more problematic. You have to make sure that you contribute enough every pay period to receive your agency matching contributions. Agency matching is based on regular contributions, not catch-up, so you can't do this sequencially. You have to contribute to both throughout the year. You also need to make sure that you max out the $18,000 of regular contributions before the end of the year if you are contributing to the catch-up. This is critical. If you don't max out the regular contribution my agency will return all of your catch-up contribution for the year and you'll be out of luck.

So, I hope you are good at math because you are going to have to compute how much to contribute each payday to meet both requirements. Oh, and don't forget to keep track of your paydays (not pay periods) for the year because sometimes we get 27 instead of 26 paydays a year. That's my case this year. They certainly don't make it easy on you. You'd think they don't want us to save for our retirement or something.

 

[offroad]

holy cow. I was just about to try and contribute to both. looks like I will just do my primary tsp first, and not touch catch up until I max out primary

Sorry to hear of your plight, mbrogz3000.

Since you started this thread as a lesson learned I thought I would add another warning for a potential gotcha.

If you are 50 or older the contribution limit to a 401K type plan like our TSP is increased to $24,000 (2015 & 2016). Unfortuantely my agency treats the extra $6000 as a seperate contribution called the catch-up contributiuon that really complicates matters.

You can contribute whatever you want to the catch-up contribution and it will automatically stop when it reaches $6000.

The regular contribution is more problematic. You have to make sure that you contribute enough every pay period to receive your agency matching contributions. Agency matching is based on regular contributions, not catch-up, so you can't do this sequencially. You have to contribute to both throughout the year. You also need to make sure that you max out the $18,000 of regular contributions before the end of the year if you are contributing to the catch-up. This is critical. If you don't max out the regular contribution my agency will return all of your catch-up contribution for the year and you'll be out of luck.

So, I hope you are good at math because you are going to have to compute how much to contribute each payday to meet both requirements. Oh, and don't forget to keep track of your paydays (not pay periods) for the year because sometimes we get 27 instead of 26 paydays a year. That's my case this year. They certainly don't make it easy on you. You'd think they don't want us to save for our retirement or something.

 

[Skorcher]

holy cow. I was just about to try and contribute to both. looks like I will just do my primary tsp first, and not touch catch up until I max out primary

No you don't want to max out the regular (primary) TSP first. You would lose your FERS matching just like mbroqz. If you're maxing out don't use % of salary either - that is too difficult to compute. Normally you would have 26 pay days in a year. So max out on the $18,000 by contributing $693 per paycheck - always round up on the cents. For the over 50 yr old catch-up max out by contributing $231 per paycheck. Make these contributions for all 26 pay days. If you mess up the calculation in the early part of the year you can correct it by dividing the remaining amount of the maximum contribution by the remaining amount of pay days.

 

[offroad]

Yes I understand. My situation is the later. I messed up for the year and now need to maximize for the remaining four paychecks.


Sent from my iPhone using Tapatalk

 

[mbrogz3000]

+1 Good advice for those able to contribute to the catch up portion.

Another little hack to consider: Roth TSP theoretically lets you contribute $18k in after tax money per year, which is significantly greater than the current $5.5k allowed by a normal financial product provider. The tax is robbed from you up front..and is then allowed to grow tax free throughout the investment period. The advantage is 'Tax the seed, not the harvest' so to speak.

Depending on lifetime performance and risk, contributing the full $18k to the Roth TSP could either be good or bad. Since we don't have time machines or crystal balls, 5% of the contribution should be placed towards TSP (401k) portion first in order to maximize the agency matching. Then the remainder then should be placed towards Roth TSP.

For those wanting to do this saving strategy... Manually calculate 5% of your yearly salary, and divide by 26. This dollar amount is your biweekly TSP contribution that will guarantee full agency matching. Then take 18000 minus the manually calculated 5% tsp contribution...and divide it by 26. This dollar amount is your biweekly Roth TSP contribution.

The disadvantage of course is more taxes will be taken up front, and you'll potentionally be in a higher tax bracket.

Being able to grow $18k tax free year after year is almost too good to be true... This will probably get altered eventually just like the unlimited TSP trades.

 

[uscfanhawaii]

+1 Good advice for those able to contribute to the catch up portion.

Another little hack to consider: Roth TSP theoretically lets you contribute $18k in after tax money per year, which is significantly greater than the current $5.5k allowed by a normal financial product provider. The tax is robbed from you up front..and is then allowed to grow tax free throughout the investment period. The advantage is 'Tax the seed, not the harvest' so to speak.

Depending on lifetime performance and risk, contributing the full $18k to the Roth TSP could either be good or bad. Since we don't have time machines or crystal balls, 5% of the contribution should be placed towards TSP (401k) portion first in order to maximize the agency matching. Then the remainder then should be placed towards Roth TSP.

For those wanting to do this saving strategy... Manually calculate 5% of your yearly salary, and divide by 26. This dollar amount is your biweekly TSP contribution that will guarantee full agency matching. Then take 18000 minus the manually calculated 5% tsp contribution...and divide it by 26. This dollar amount is your biweekly Roth TSP contribution.

The disadvantage of course is more taxes will be taken up front, and you'll potentionally be in a higher tax bracket.

Being able to grow $18k tax free year after year is almost too good to be true... This will probably get altered eventually just like the unlimited TSP trades.

Sorry, I don't follow your logic at all.

The gov't, your employer, will match you 5% whether you are contributing to Traditional TSP OR Roth TSP. It doesn't matter. It's just that the 5% Match will go into your Traditional IRA. The decision whether to go Traditional or Roth TSP is discussed in other threads, but has nothing to do with the 5% matching.

Also, the math has been worked out saying that it doesn't matter whether you pay the tax up front or at the end if you assume the same rate of return and the same tax rate. What DOES matter is what tax bracket you are in when you pay the tax. You want to pay taxes when you are in a low bracket. And this leads to the problem of when you withdraw funds from TSP. They (TSP) do not allow you to withdraw only from Traditional or Roth, nor do they allow you to put Traditional and Roth funds in different Fund allocations. Again, these issues are discussed in the Traditional vs Roth TSP advantages threads so I won't belabor them here.

BUT, I do not expect that the Roth option will ever be reduced, because the gov't will always prefer to get their $$ up front. :usa2: If you look at IRAs, they disallow Traditional IRAs as income goes up, and ONLY allows Roth IRA at the higher income levels.

Go for Roth TSP if you like Roth.....but please decide based on the plusses and minuses between the 2 types. Roth is not automatically the best route. Good Luck in your retirement goals!!

 

[Cactus]

Heads up everyone. Now is the time to set up your allocations for 2016.

The contribution limits for 2016 are $18,000 with a $6000 catch-up contribution for those who will be 50 or older in 2016. If you want to max out your contribution and spread that out evenly over 26 paydays you need to contribute $693 to reach $18,000 and $231 for the $6000 catch-up contribution.

 

[Frixxxx]

Heads up everyone. Now is the time to set up your allocations for 2016.

The contribution limits for 2016 are $18,000 with a $6000 catch-up contribution for those who will be 50 or older in 2016. If you want to max out your contribution and spread that out evenly over 26 paydays you need to contribute $693 to reach $18,000 and $231 for the $6000 catch-up contribution.

Or you can use my Spreadsheet for planning...

Hey all,

My updated spreadsheet for TSP contributions for 2016
Spreadsheet is free for public use since it is math only (conditional formatting), spread the word, spread the knowledge. And for the love of all that is holy, Spread the Love!
View attachment 36077

 

[k0nkuzh0n]

Or you can use my Spreadsheet for planning...

Frixxxx you did way too much work in that spreadsheet my friend!

Cell B3 should have been =$A3*B$4/(26*100)

Then its just click and drag, or copy-paste from there!

 

[Frixxxx]

Frixxxx you did way too much work in that spreadsheet my friend!

Cell B3 should have been =$A3*B$4/(26*100)

Then its just click and drag, or copy-paste from there!

Let me introduce you to the associative property of mathematics.:ban:

I created this when I worked and lived in a vault......so yeah, I could have been more creative.

Maybe my next life.

 

[mbrogz3000]

Just wanted to post a brief follow-up. As evident on my past 3 paychecks - my agency has still been providing me the 1% TSP Basic match, even though I'm not technically contributing to the TSP for this period of time. So I'm only losing out on 4% agency matching, not 5%. If I have time, I'll go back into what I wrote and clean it up.

 

[Cactus]

Thought this article was an appropriate post for here: How to Get the Most Money From Your TSP Matching Contributions : FedSmith.com