Money Pilot Financial Advisor Podcast
Money Pilot Financial Advisor Podcast
Episode 76 Change TSP Contributions
When changing your Thrift Savings Plan (TSP) contributions. three dollar limits that apply The annual limit is $20,500. This limit is to the combined total that you can contribute in 2022 to your Traditional and Roth TSP combined. This limit does not apply to Traditional TSP contributions made from combat pay. The next limit is $6,500 on additional catchup contributions for those turning age 50 or older in 2022. So if that's you, can make total TSP contributions of up to $27,000. For military in a combat zone, your contributions toward the catch-up limit must be Roth. And you can't contribute toward the catch-up limit from incentive pay, special pay, or bonus pay.
The third limit is the $61,000 Annual Addition. Its the total amount of all the contributions that can be made to your TSP a year. This limit is includes your employee contributions and for you BRS military and FERS civilians the Automatic 1% Contributions, and up to 4% Matching Contributions. It doesn't include catch-up contributions. The annual addition limit affects mostly our military service members who can contribute tax-exempt pay earned in a combat zone up to this limit.
Next decide how much your can and want to contribute. Remember with ROTH TSP, you pay your income taxes now, up front on your contributions. So you will have less money paycheck each pay period when you contribute to ROTH TSP than if you contribute to Traditional TSP. YFor more info listen to Episode 28 Meet ROTH and Episode 30 To ROTH or Not to ROTH.
Civilian employees usually designate a dollar amount to contribute from each paycheck, while our service members will need to elect a percentage. FERS civilians and BRS military, in order to get your full match, you need must contribute at least 5% of your pay in every single pay period to get your full match. If you hit one of those limits before the end of the year, you give up that match from your pay for the rest of the year. Check out their online Elective Deferral Calculator . You’ll need your most recent LES and guess how many pay periods it will take your personnel center to make the change to your pay. For Military and DoD civilians, MyPay says, it will be effective at the beginning of the next pay period. So enter 0 for this box.
The calculator will give you the new amount you can contribute each remaining pay period if you want to maximize your contributions for 2022. Pick what you can afford, or that max number from the website, whichever is lower for your contribution.
Next use your electronic payroll system to change your TSP contributions. For military service members and DoD civilians thats myPay. For other for federal employees there are other payroll systems, like Employee Express, EBIS/GRB, LiteBlue, and NFC EPP.
Generally, feds will use enter the dollar amount and service members a percentage of your pay. Military can keep this simple by contributing from your base pay. Take the monthly TSP contribution you want to make, divided by your monthly base pay, times 100
Then go to myPay and log in. Under the “PAY CHANGES” heading, select the “Thrift Savings Plan (TSP)” link. Then click the yellow pencil icon to make a change to your TSP contribution. Enter your changes in the pop-up window. Enter that percentage in the base pay box for either Traditional TSP or ROTH TSP or split between both. There’s boxes to enter percentages for other pays as well.
Then click Continue to review then Submit.
Welcome to the Money Pilot Financial Advisor podcast, where you team up with Money Pilot Founder, former Army helicopter pilot, and your host Katie Cannon, to put your money where your heart is. Together, we'll tackle issues big and small so you can take charge and land your financial life.
Kathleen Cannon:Hello, and welcome back to the podcast and the first episode of 2022. Today, we'll be talking about changing your Thrift Savings Plan or TSP contributions. Why? Because the limits have increased from last year. And if you want to contribute more in 2022, you'll need to put in a new request. It's not automatic. So today, we'll talk about how to make that happen, including knowing what the limits are, things to consider when deciding how much and when to contribute, help making the calculations and lastly, where to make the change. We'll start with the three limits that apply to your TSP contributions. The first limit is the annual limit that affects everyone and it's $20,500. This limit is the combined total that you can contribute in 2022 to your Traditional and Roth TSP combined. There is one exception for our military service members. This $20,500 annual limit does not apply to traditional TSP contributions made from combat pay. Alright, the next dollar limit you need to know is $6,500 on Catchup contributions. Beginning the year you turn age 50, you can make additional Catchup TSP contributions. These extra contributions give you a chance to put away more money for retirement, even if you're not behind. So for 2022, those of you 50 or older can make total TSP contributions of up to$27,000. That's the $20,500 everyone is allowed to contribute plus the $6,500 Catch up contributions. For those of you 50 and older. If you're a military member serving in a combat zone, your contributions toward the catch up limit must be Roth. The TSP cannot accept traditional tax-exempt contributions toward the catch up limit. You also cannot contribute toward the catch up limit from incentive pay, special pay or bonus pay. It's got to be from base pay. Okay. The third limit everyone needs to know is the $61,000 Annual Addition limit. The Annual Addition limit is the total amount of all contributions that can be made to your TSP in one calendar year. This limit is per employer, in this case, the US government and includes money from all sources. So that is your employee contributions, whether that's tax- deferred, after-tax, or tax-exempt. And for you BRS military and FERS civilians, the automatic 1% contributions, and up to 4% matching contributions made for you by the US government. Now, this $61,000 annual edition limit does not include catch up contributions. So if you're doing the math along with me, you may be saying there is no way to hit this $61,000 limit. I mean, even if I contribute the full $20,500 and get automatic and matching contributions to my TSP. You're right. The annual addition limit affects mostly our military service members who can contribute tax-exempt pay earned in a combat zone up to this $61,000 limit. It can also catch our government civilians who are also guard or reservists who end up getting combat pay and contributing to their military TSP plus their civilian TSP back to regular civilian job. So again, our military with combat pay contributions, you just need to keep an eye on this overall $61,000 limit. Okay, these rules about TSP contributions from combat pay can be a bit confusing, but it's also an incredible opportunity. It's so important to understand, I'm dedicating next week's podcast to the tax-exempt combat pay TSP contributions. So if you're a military service member, be sure to tune in. Okay, now you know the limit. It's up to you to decide how much you can and want to contribute to TSP. Take a good look at your cash flow or budget, your priorities and other savings goals. Remember, you'll be locking up your contributions for retirement. With few exceptions, there's a penalty if you withdraw funds from your TSP before age 59 and a half. For our FERS civilians and BRS military, your TSP is a key part of your retirement triad, which is your TSP, your pension, and your Social Security. And if you don't serve long enough to get a pension, your TSP retirement savings are even more important. Remember, when you're reviewing your budget or cash flow, that you get a break in taxes now with traditional TSP, but you'll have to pay income tax on your contributions and the growth later when you pull it out in retirement. With Roth TSP, you pay your income taxes now upfront on your contributions, so you will have less money in your paycheck each pay period when you contribute to Roth TSP than if you contributed the same amount to a traditional TSP. There are awesome things about Roth TSP. Just keeping that additional tax cost in mind when you're looking at today's cash flow, and deciding how much you can save from each paycheck. There are pros and cons to both Traditional and Roth TSP. And you can get more info on this decision in Episode 28, Meet Roth and Episode 30, To Roth or Not to Roth. Alright, you now know your limits, whether you'll go Roth, Traditional, or some of each, and you've decided how much you can contribute this year. On to contribution how-tos. Each pay period, your agency or service will deduct your contribution from your salary in the amount or percentage that you choose. Our civilian employees usually designated a dollar amount to contribute from each paycheck. While our service members will need to elect a percentage of your pay to contribute. You still have the same dollar limits, but you military will have to do some extra math to come up with a percentage of your base pay and/or special pays. Yeah, I know it's a pain, but I'll walk you through it in a minute. But first, our CSRS civilians and non-BRS military who don't receive matching contributions from Uncle Sam, you can spread your contributions out or pay it up early in the year it doesn't matter. But for the FERS civilians and the BRS military, in order to get your full match, you need to spread your contributions out throughout the year. So you contribute at least 5% of your pay in every single pay period. If you hit one of those limits we talked about earlier before the end of the year, you give up that match from your pay for the rest of the year. It's a great idea to save more than 5% of your pay each pay period. You just want to be careful not to max out too early. All right, back to the math I mentioned. Don't lose heart, TSP has your back. Check out their online elective deferral calculator. I'll put a link in the show notes. You can also get to it from the TSP homepage. Scroll down to the blue bar and click Calculators. Then choose the "How much can I contribute" link. You'll need your most recent LES and know how many pay periods you have left in the year. Then remember civilians have 26 pay periods a year, military have 12. In the online calculator, choose 2022 for the year to review, and click yes or no when asked "Will you turn 50 years old or older in 2022" Fill in the dollar amount of your contributions you've made so far to TSP in 2022. You'll find this on your LES as TSP year-to-date. Next, the calculator asks, How much more will you contribute to the TSP before any changes take effect. Ha, get your crystal ball, you need to guess how many pay periods it will take your personnel center to make the change to your pay. For military and DOD civilians, according to the MyPay website, after an election is entered into MyPay, it will be effective at the beginning of the next pay period. So that's great, though it may take one to two pay periods before it's visible in your MyPay and on your LES. So you should be able to enter the zero for this box. Almost everyone else will need to ask or based on your experience with other page changes. Then the last entry is "Select the remaining number of salary payments you will receive in 2022 after your new amount takes effect". So that's the number of pay periods you have left in 2022 after the change. Then scroll down and wallah, it will give you a new amount that you can contribute each remaining pew pay period if you want to maximize your contributions for 2022. So compare this number. With the dollar amount you decided that you could afford to contribute each pay period. Then pick what you can afford, or that max number from the website, whichever is lower. That'll be your contribution. Your next step is to actually make the change, but not on the TSP website. In most cases, you'll need to use your electronic payroll system to change your TSP contributions. So as I already mentioned, for military service members and DOD civilians, that's MyPay. For other federal employees, there are other payroll systems like Employee Express, the EBIT/GRB, LightBlue,, NFC EPP, you name it. So go to yours and make the change there. Generally, feds will use the dollar amount of your contributions when making the change. But for a lucky service members, you must enter a percentage of your pay. Yes, more math. But stay with me and whip out that calculator app on your phone. You can make contributions from your base pay, special pays, incentive pays and/or bonus pay. If you want to keep this simple, just contribute from your base pay. Take the dollar amount you want to contribute each month and divide it by your monthly base pay that's listed on your LES that number should be less than one, like .09 for example. So multiply that by 100. And that is your percentage contribution. Again, your monthly TSP contribution you want to make divided by your monthly base pay times 100. You did it. You are now ready to make it happen. So go to MyPay and log in. Under the Pay Changes heading, select the Thrift Savings Plan TSP link. Then click the yellow pencil icon to make a change to your TSP contribution. You'll enter the changes in the pop up window. If you stuck with make it simple, enter that percentage in the base pay box for either traditional TSP or Roth TSP. You can contribute to both at the same time. You would just split it between the two. If you want to contribute from other pays There's boxes to enter percentages there as well. Then you click continue to review. If it looks good, click Submit. You can log back into my pay after two or three business days to verify the change was accepted. Okay, that wraps it up for today. I know I threw a lot of numbers at you, and there were several steps, but you've got this. Don't hesitate to re-listen to the broadcast and check the show notes to read about it and find the links and we'll talk with you again next week.
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