[Editor’s Note – The process of contributing to the TSP above the $18K annual limit while deployed can be confusing. Thanks to Dr. Levi Kitchen for giving us a first hand summary of how it works.]
By LCDR Levi Kitchen (Levikk81 < at > gmail.com)
Deployment offers a number of financial benefits, including tax free pay which can be directly contributed to your Thrift Savings Plan (TSP). However, this can be tricky. The following numbers are based on 2017 limits, which can be seen at this link.
Normally, the elective deferral limit is $18,000 annually. A deferral is defined as the money you elect to remove from your paycheck and contribute to the TSP. This includes either Roth or traditional TSP contributions. When deployed to a combat zone and therefore receiving combat zone tax exempt (CZTE) pay, the deferral limit for the current calendar year increases to $54,000. However, even when receiving CZTE pay, you cannot exceed $18,000 in contributions to your Roth TSP. The remaining $36,000 would have to be contributed to the traditional TSP. Also, in order to take advantage of the higher limit, the money has to come from your CZTE pay, which has to come directly from your paycheck. So, you can only take advantage of the higher deferral limits while receiving CZTE pay, not after.
Although the decision between the Roth and traditional TSP can be complicated (a matrix can be seen here), it’s probably smartest to max contributions to the Roth TSP first as, due to the CZTE, this money will never be taxed by the federal government. Once you reach a total contribution of $18,000 to the Roth TSP, DFAS will automatically stop deducting money from your paycheck. At this point, you need to change your contributions to traditional TSP in MyPay, because you’ve reached the limit of allowable Roth TSP contributions. Automatic deductions to the traditional TSP would again stop once you reach the total limit of $54,000 ($18,000 in Roth TSP and $36,000 in traditional TSP) for the calendar year, or you stop receiving CZTE pay.
As far as I know, once you stop receiving CZTE pay, your annual limit returns to $18,000 regardless of either Roth or traditional contributions. If you’ve already contributed over $18,000 while deployed, then you cannot contribute anymore to your TSP for that calendar year.
For any comments or questions, please email Levi at Levikk81 < at > gmail.com.