Thrift Savings Plan (TSP) Q&A

[tunes]

This is not a problem with myPay. If you submitted it and received confirmation it should process. What displays in myPay is only your current active open items of your pay record. So those myPay requests won't show up until they process (after 1 Nov if you entered the request in Oct). So you can go in 20 times after the first time and it still will not show. The first one should process and those other 20 would reject since they are duplicate transactions. Go check myPay today and see if it shows up. I'll bet it is there with the 1 Nov effective date from your original request. The one you now see with a Dec start will reject since by the time it tries to process the start transaction it will reject since you cannot start something again that has already been started. Make sense?

PM me if it is not showing up. Later.

FG

thanks not sure what happened with it not registering for 1 NOV as effective date....the screen now shows the changes i made and says effective 1 Dec....oh well

[MacGyver]

sounds like for Reservists we won't be able to use ROTH TSP until 2013. I am not able to set it up in mypay yet. Any Guard/Reserve guys able to set this up yet?

from dfas.mil:

Reservists and National Guardsmen start dates for Roth TSP deductions have now changed and will occur during 2013. According to DFAS, this timeline ensures systems changes and electronic deductions meet all of the requirements of the law and the Federal Retirement Thrift Investment Board. Work continues as the interim solution for reserve components members did not meet FRTIB requirements.

[ThreeHoler]

TSP examines in-plan conversion option — The President approved the American Taxpayer Relief Act of 2012, on January 2, 2013. This law allows the TSP and other qualified plans to give participants the option to convert their traditional account balances to a Roth balance. The amount converted would be taxable to the participant. We are currently waiting for tax reporting guidance from the IRS and will be studying the actions required to offer a conversion option. After that review, we will make decisions on whether to proceed.

Keep an eye out. Looks like they might let us convert Traditional TSP to Roth TSP.

[nsplayr]

Keep an eye out. Looks like they might let us convert Traditional TSP to Roth TSP.

Nice! Don't think my tax rate can possibly get any lower than it is right now w/ mortgage, kids, deployments, etc. I'd greatly prefer to pay taxes on my non-Roth TSP now than when I'm 69 or whenever. Good find man.

Edited January 30, 2013 by nsplayr

[JS]

nsplayer,

To your first question: yes, Roth contributions with deployment tax free money makes a lot of sense (you'd never pay taxes on it).

I would add this though - if you're deployed for 6 months of a given year, does it matter *when* you put the money in? At the end of the year, you're just going to add up all of your tax free earnings and and deduct it from your gross income. You aren't going to specify when you contributed to an ira/tsp. The money in the Roth is not going to be taxed when you take it out regardless, and the amount you put in will be the same. I don't think there's any difference between putting the money in an IRA/tsp during a month when you're deployed or putting it in during a month when you're home, as long as those months are both in the same year. If I'm wrong, chime in.

Bingo!! You are dead on with this. I had not read up on this thread in a while, and was going to respond to the 10 other previous posts that mentioned only contributing to a Roth while deployed. That makes no sense. The above bolded stuff is probably the most misunderstood concept that guys in this thread have.

To the poster who wrote about turning on and off contributions to the Roth before and after the deployment, you are creating a lot of extra work and creating extra confusion.

Like Jaded said, your 1040 tax return does not give a shit when you earned tax-free CTZE income. Your W-2 does not give a crap when you earned CTZE income. Also, your Roth doesn't give a shit whether or not you earned tax-free income or not, it just cares that money is coming into it. Of course, that money going into a Roth is after taxes, whether or not you deployed, had deductions, etc. Again, the money you earn in a CTZE is not somehow specifically electronically marked as "combat pay" when it goes into your bank account or when it is taken from your LES and put into the TSP. It all goes into a pot of money that is sorted out when you (or TurboTax, Taxslayer, etc) do your taxes by entering the taxable amount from your W-2 into your 1040. That taxable amount does not include any Q-code tax free combat zone income.

Also like Jaded eluded to, it makes the most sense to look at taxes, tax rates, income, and investments over the course of an entire year. You may as well get out of the mindset that you have to contribute to after tax accounts (Roth) while you are actually in a combat zone because that money is tax free and will come out tax free. In actuality, that investment into the Roth is not tax free at all. Even if you physically put it into the Roth from your laptop while you were taking mortar fire while hiding under your bed in Kandahar, that money still most likely got taxed due to your other, taxable income that year (did I mention that you have to look at taxes over the course of a year and not by the month???) Here is another illustration to prove my point:

You deploy for 4 months and end the year with 30K CTZE income and 40K of "regular," stateside taxable pay. Ignoring all deductions, exemptions, tax-free BAH, credits, etc for illustration purposes, you will receive a W-2 in January that says 40K taxable income on line 1 and on line 12 will have Q 30K of tax free income (again - no sign of the timeline as to when you earned the $30K of CTZE income). Your tax software will then crunch the numbers, and you will pay taxes on the 40K and will owe about $6K, or about 15%. Of course, your annual income was indeed $70K, but you still only pay $6K in taxes, for an annual tax rate of about 8.5%. So in this manner, I can easily say that your tax-free income was actually taxed at 8.5%, just as your stateside income was taxed at 8.5%. Why? Because taxes are calculated annually, not monthly. Did I mention that?

So, whether you transferred the $5K from your bank account into the Roth IRA when you were in the CAOC or at home in Cannon, sitting in your PJs sipping coffee, the money you put in to the Roth was taxed at 8.5%. You earned tax-free income that year, but your Roth contribution came out of the same pot that your taxed income did - the $70K pot. So, in the end, guys can imagine in their heads that the money they are putting into a Roth is "tax-free" going in and "tax-free" going out just because they were in a CTZE for part of the year, but that won't be entirely accurate (unless they indeed were deployed all year or for whatever reason literally paid 0 taxes for the entire year).

So to answer the other question about SDP vs Roth investments while deployed, I would definitely take advantage of the SDP while deployed, since that is indeed a CTZE-only investment offering where the government is no-shit subsidizing your investment and paying you 10% of risk-free return (unheard of in the private sector). While maxing out the SDP in the deployed zone, you can still be following your regular investment plans into the Roth TSP, TSP, Roth IRA, or regular IRA as scheduled. You can continue your Roth investments on a monthly basis throughout the year, or a lump sum at the end of the year, or for the imaginary benefits of tax-free inputs, you can tailor your Roth investments to only take place during the months you are deployed. Either way, you can do SDP at the same time.

My personal strategy is to do a lump into our Roths at the end of the year, because I want to be sure that I didn't mess up my tax calculations with my side business, investments, mortgage interest, etc. and owe the IRS money at the end of the year. I almost always get a big refund as planned, and then just use that for the Roth contributions. By the way, you can contribute to the Roth IRA up until tax day (April 15) of the next year. In other words you have until April 2013 to contribute into the 2012 Roth.

Again, in the end, the decision to go Roth or traditional should be decided when looking at your tax rates for the entire year (did I mention that before?) and not by mentally separating out CTZE income from regular income, because they are essentially the same when look at your income over the course of the entire year.

[JS]

There is associated risk vs return for each fund. Except for the G-Fund...it's a free lunch. There is no other asset out there these days that will give 3-4% return and protect your principle.

Vetter, you should know that there is no such thing as a free lunch - especially when it comes to investments and dealing with the government. Haha.

In all seriousness, though. Don't forget about inflation risk. There may not be any risk of loss of principle in the G-fund, but because the returns are so low, you have to beat inflation to get ahead. Here are the returns for the past few years on the G-fund versus the inflation rate:

2012 - 1.47 / 2.1

2011 - 2.45 / 3.2

2010 - 2.82 / 1.6

2009 - 2.87 / -0.4

2008 - 3.75 / 3.8

So, really, if your money was parked in the G-fund, you actually lost money in all but 2010 and 2009 in this example of the past five years. I always though that the G-fund was for people who were very close to retirement and really could not tolerate any form of risk and had to preserve capital at all costs (even the cost of losing money, like in this example).

[Finance_Guy]

Here is another illustration to prove my point:

You deploy for 4 months and end the year with 30K CTZE income and 40K of "regular," stateside taxable pay. Ignoring all deductions, exemptions, tax-free BAH, credits, etc for illustration purposes, you will receive a W-2 in January that says 40K taxable income on line 1 and on line 12 will have Q 30K of tax free income (again - no sign of the timeline as to when you earned the $30K of CTZE income). Your tax software will then crunch the numbers, and you will pay taxes on the 40K and will owe about $6K, or about 15%. Of course, your annual income was indeed $70K, but you still only pay $6K in taxes, for an annual tax rate of about 8.5%. So in this manner, I can easily say that your tax-free income was actually taxed at 8.5%, just as your stateside income was taxed at 8.5%. Why? Because taxes are calculated annually, not monthly. Did I mention that?

I'd like to point out that you are assuming a person is taxed on the full $40K without regard to deductions, exemptions, earned income or child tax credits. A single person's return would reduce the $40K by an easy $10K which leaves $30.2K taxable. Tax due of about $4,106; based on $70K income, 5.9% effective tax rate.

Married with a spouse, no kids [and only one income] would make taxable AGI at about $20.5K with a total tax due of $2,209; based on $70K income, 3.2% effective tax rate. If the couple had a kid and only one income, then I'd say eff. rate more or less would be 0.00% due to earned income and child credits.

The point here is you rarely get taxed based on the W-2 Federal wage amount face amount, there are adjustments, so people need to figure all that in as well. Most good tax software, if not all, will give you the annual "effective tax rate" after you file. I go by that number in the end, but do watch the tax rate brackets in trying to get into the next lower one if possible.

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

[Termy]

Tell that to Phil Mickleson....he didn't seem to grasp that concept either. Then again, he went to Arizona State.

[nsplayr]

So to answer the other question about SDP vs Roth investments while deployed, I would definitely take advantage of the SDP while deployed, since that is indeed a CTZE-only investment offering where the government is no-shit subsidizing your investment and paying you 10% of risk-free return (unheard of in the private sector).

SDP really is the best deal I've ever heard of; maxed it out during my last two deployments. I tell anyone who doesn't know about it or isn't putting in as much money as they possibly can that they're idiots since 10% with no risk is indeed unheard of and all it takes if a few clicks of the mouse and a quick swipe of eagle cash or writing a check.

https://turbotax.intu...tors/taxcaster/

That tool is ok (also an iOS app) but I used it last year just for fun and it significantly underestimated my refund because it specifically says it does not account for EITC or the child tax credit. If those things are a factor in your taxes, it will not give you an accurate picture of your refund.

[JS]

I'd like to point out that you are assuming a person is taxed on the full $40K without regard to deductions, exemptions, earned income or child tax credits. A single person's return would reduce the $40K by an easy $10K which leaves $30.2K taxable. Tax due of about $4,106; based on $70K income, 5.9% effective tax rate.

Married with a spouse, no kids [and only one income] would make taxable AGI at about $20.5K with a total tax due of $2,209; based on $70K income, 3.2% effective tax rate. If the couple had a kid and only one income, then I'd say eff. rate more or less would be 0.00% due to earned income and child credits.

The point here is you rarely get taxed based on the W-2 Federal wage amount face amount, there are adjustments, so people need to figure all that in as well. Most good tax software, if not all, will give you the annual "effective tax rate" after you file. I go by that number in the end, but do watch the tax rate brackets in trying to get into the next lower one if possible.

https://turbotax.intu...tors/taxcaster/

FG,

You don't have to point out that I am assuming no deductions, exemptions, or credits. I already pointed out that assumption in my original post where I said " Ignoring all deductions, exemptions, tax-free BAH, credits, etc for illustration purposes."

Remember, I was just trying to illustrate that your regular taxed income and your combat tax zone exclusion income (notice is it not called "tax-free," because it is not tax free, it is just excluded for your overall income for tax calculation purposes) are both thrown into the same exact pot at the end of the year before your overall tax rate is calculated. That overall tax rate (after deductions, exemptions, etc) is what you should base your Roth/Traditional decision on, in my opinion.

[Finance_Guy]

FG,

You don't have to point out that I am assuming no deductions, exemptions, or credits. I already pointed out that assumption in my original post where I said " Ignoring all deductions, exemptions, tax-free BAH, credits, etc for illustration purposes."

Remember, I was just trying to illustrate that your regular taxed income and your combat tax zone exclusion income (notice is it not called "tax-free," because it is not tax free, it is just excluded for your overall income for tax calculation purposes) are both thrown into the same exact pot at the end of the year before your overall tax rate is calculated. That overall tax rate (after deductions, exemptions, etc) is what you should base your Roth/Traditional decision on, in my opinion.

Got it but I was focused on this part, "Your tax software will then crunch the numbers, and you will pay taxes on the 40K and will owe about $6K, or about 15%." Tax software will calculate the overal tax rate using the deductions & etc. So you can't say "assuming no deductions and all that" and then say your software will spit out you owe $6K on $40K. I was more or less saying the same thing you just saidn in your last sentence above.

[Bayou_Eagle_Driver]

Is there somewhere on my online TSP account that I can see if I'm contributing to the Roth TSP? I believe I selected that when I set it up in November, but I don't see any indication on their website as to where my money is going, besides the normal funds. All Roth info on the TSP site is just referencing "future changes"

Thanks.

[Ziplip]

Is there somewhere on my online TSP account that I can see if I'm contributing to the Roth TSP? I believe I selected that when I set it up in November, but I don't see any indication on their website as to where my money is going, besides the normal funds. All Roth info on the TSP site is just referencing "future changes"

Thanks.

When you log on click on the "Account Balance by Contribution" tab, this will break out how much you have in each fund and how much of it is in the Traditional vs Roth TSP. This will at least let you know if any money has gone into the Roth since you set it up in November.

[SurelySerious]

Is there somewhere on my online TSP account that I can see if I'm contributing to the Roth TSP? I believe I selected that when I set it up in November, but I don't see any indication on their website as to where my money is going, besides the normal funds. All Roth info on the TSP site is just referencing "future changes"

Thanks.

Your LES will have separate categories for the TSP types, as well.

[matmacwc]

Any ARC/ANG ARTs doing this yet? How does it work on the civilian side with the match?

[Bayou_Eagle_Driver]

Thanks ABM found it.

Of course; I followed up with my Finance Office (Guard) per the instructions on MyPay and they responded with zero knowledge on the subject. Shocker.

[Finance_Guy]

Warning: Apple App store offering TSP App not sanctioned by TSP

— A free iPhone App, TSP Funds, currently being offered through the Apple App store asks TSP participants for their account login information. This app is not being offered through the TSP and the TSP does not recommend using this application to access your TSP account. Providing this information could result in a security risk to your account.

[MilitaryToFinance]

Has anybody rolled their TSP over to an IRA before? I'm attempting to do that now and it seems to be taking forever. I got their form notarized then sent it to my new broker since they have to sign it as well. My broker sent me an email last Wednesday saying they had processed the paperwork and sent it to TSP. As of now TSP hasn't even acknowledge that I sent the form let alone started processing it. Is this unusual to take so long or standard procedure for TSP?

[BFM this]

FWIW, I've rolled over several of the Frau's 401k's, and it always took two to three months. They were all various state retirement systems, beurocratic BS nightmares (we need you to mail the paperwork so we can sign it and mail it up to the state HQ, NO you cannot be all 21st century and scan and email!)

so the TSP experience sounds similar.

[MilitaryToFinance]

Yeah and of course my broker has a nice easy form to fill out but TSP says, we will not accept broker forms you must use ours. So I sent both to my broker and asked them to fill them both out and mail them. We'll see how long it takes, I'm sick of the crap options TSP offers.

[Warrior]

I'm deployed since January, wanting to put money in ROTH TSP while I'm out here then make traditional contributions after I get home (this summer) shooting for the next lower tax bracket (married, mil-mil, she's not deployed).

Cliffs notes version of the last few months: Allotment gets rejected, deployed finance office says they don't have anything to do with TSP and I need to talk to DFAS. I call DFAS, press 3 for TSP and get transferred to the TSP thriftline. TSP folks are nice, but not helpful - their answer is to talk to my payroll office. Around and around we go - anyone had similar experience/ideas on how to get it fixed?

Only reason I haven't punted on TSP and gone to vanguard is without TSP (or a roth 401k equivalent) offered by your employer, I don't know of any other way to save after tax money that will be tax free when I withdraw it.

[Jaded]

Shooting for a lower tax bracket may not be worth it in your situation. Remember that it's only those dollars above the line that get taxed at the higher rate. If you are $1 over the 25% bracket, only that last dollar is taxed at 25%.

It also doesn't matter when you make your contribution as long as it's in the same tax year. You dont have to time contributions to coincide with deployed months.

Simple strategy should be : if you are deployed for much of the year, only contribute to Roth ira/TSP in that year. Traditional Iras are barely better than brokerage funds during deployed years.

And to answer one of your questions, have you considered a Roth ira? Tax wise it's the same as the Roth TSP but just has lower contribution limits.

[Jughead]

I'm deployed since January, wanting to put money in ROTH TSP

Can't put CZTE money into the Roth TSP. [EDIT: Pretty unclear how I phrased this--see post #257 below, hopefully I did better there]

That would explain the rejection. I'm assuming you're not senior enough to exceed the CZTE limit (i.e., all of your pay is tax-exempt while you're deployed to a combat zone).

If you are senior enough (or, say, get a bonus payment that pushes you above the limit), you can put the excess into a Roth or Traditional (tax-deferred) TSP. As I've said on here before, I believe the TSP is worthwhile even for the tax-exempt portion (assuming you are also maxing out your Roth IRA)--true, you don't see any immediate tax advantage, but that money is still in a tax-preferred account with very low costs, growing tax free until withdrawal. I've literally put every single dime for which I've been eligible into the TSP since it was made available to the Uniformed Services, including tax-exempt money. I wish it had been around when I was a Lt (who knows if I'd've had the discipline to max it then, but still...).

I don't know of any other way to save after tax money that will be tax free when I withdraw it.

Roth IRA (albeit with much smaller limits--$5,500 vs $17,500 for 2013). [ETA: As Jaded said...]

Edited March 17, 2013 by Jughead

[Finance_Guy]

I'm deployed since January, wanting to put money in ROTH TSP while I'm out here then make traditional contributions after I get home (this summer) shooting for the next lower tax bracket (married, mil-mil, she's not deployed).

Cliffs notes version of the last few months: Allotment gets rejected, deployed finance office says they don't have anything to do with TSP and I need to talk to DFAS. I call DFAS, press 3 for TSP and get transferred to the TSP thriftline. TSP folks are nice, but not helpful - their answer is to talk to my payroll office. Around and around we go - anyone had similar experience/ideas on how to get it fixed?

Only reason I haven't punted on TSP and gone to vanguard is without TSP (or a roth 401k equivalent) offered by your employer, I don't know of any other way to save after tax money that will be tax free when I withdraw it.

Um, did you try myPay? You don't set up allotments for TSP. The TSP line is to call about your TSP account after funds have been deposited.

[Warrior]

Thanks for the responses. Brevity fail on my part, didn't include some pertinent info: Roth IRA is already maxed for the year, looking for more Roth savings due to low taxes this year. I'm a mid-level Capt/no bonus so exceeding CZTE isn't a factor.

Shooting for a lower tax bracket may not be worth it in your situation. Remember that it's only those dollars above the line that get taxed at the higher rate. If you are $1 over the 25% bracket, only that last dollar is taxed at 25%.

It also doesn't matter when you make your contribution as long as it's in the same tax year. You dont have to time contributions to coincide with deployed months.

Would traditional contributions made in a tax free month still be deductible? I understand what you're saying about the margin, and that last $ taxed at 25% would be the point of diminishing returns for traditional contributions. You and I don't care what month that dollar showed up, but will my W2 show the sum of all traditional contributions made this year or only the contributions made in months that aren't tax free?

Can't put CZTE money into the Roth TSP.

That would explain the rejection. I'm assuming you're not senior enough to exceed the CZTE limit (i.e., all of your pay is tax-exempt while you're deployed to a combat zone).

Source? That explains a lot, but I missed that bit of info in all my reading on the TSP website...

ETA: Reading comprehension fail. So does this mean I can put money in traditional TSP then when I get home I can put up to $17500 in Roth? Not to exceed a total of $51k for the year?

https://www.tsp.gov/planparticipation/eligibility/contributionLimits.shtml

$17,500 limit Applies to combined total of traditional and Roth contributions. For members of the uniformed services, it includes all traditional and Roth contributions from taxable basic pay, incentive pay, special pay, and bonus pay, but does not apply to traditional contributions made from tax-exempt pay earned in a combat zone.

$51,000

An additional limit imposed on the total amount of all contributions made on behalf of an employee in a calendar year. “All contributions” include employee contributions (tax-deferred, after-tax, and tax-exempt), Agency Automatic (1%) Contributions, and Matching Contributions.

But the website says this below the table:

If you are a member of the uniformed services, you should know that Roth contributions are subject to the elective deferral limit ($17,500 for 2013 and $17,000 for 2012) even if they are contributed from tax-exempt pay. If you want to contribute tax-exempt pay toward the annual additions limit, you will have to elect traditional contributions for any amount over the elective deferral limit.

So now I'm more confused?

and FG - I did set up through myPay. Finance here told me that Roth TSP contributions are set up as allotments. But I've been wrong before...

Again, thanks for ya'lls help. I'll do some more digging on CZTE pay not being eligible for Roth.

Edited March 17, 2013 by Warrior