2009 TSP Info

The Federal Retirement Thrift Investment Board recently announced the 2009 limits for TSP Contributions, loan interest rates, and other up-to-date TSP info at this site.  The elective deferral limit for 2009 is $16,500.  Elective deferrals are the tax-deferred amounts that you choose to contribute to the plan instead of receiving as pay.  In addition, members serving in designed tax-free combat zones can contribute up to a total of $49,000 in 2009.  Wow - that is a lot of money.  However, there are big  benefits to contributing heavily to your TSP while deployed.  The money won't ever be taxed, because it has been earned in a tax free zone.  As long as you contribute some portion of your base pay, then you can contribute up to 100% of any special pays.  The explanation sounds a little complicated, but basically any money you contribute to your TSP account while you are deployed doesn't fall under the $16,500 limit because you aren't deferring any taxes.  The $49,000 figure represents another IRS rule that limits total contributions to TSP, not just the ones that are deferring taxes.  (I apologize if I sound redundant - it took me a while to figure it out).

If you are eligible for a civilian TSP account because you are a reservist who works for the federal government, or you leave the military during the year and then begin working for the federal government, there are some special rules that apply to your contributions.  Some info about these situations can be found here,

There is a good TSP question and answer page located here.  In addition, the TSP Board offers a variety of publications that explain nearly every possible TSP situation.

Comments

[TSPCzar]

It's not rocket science. However to contribute from other pays in or out of a combat zone you need only "elect" to contribute from basic pay. When an election is filed the DFAS, CG and PHS systems look to see that an election from basic pay was made to also process elections from special, incentive and bonus pays. However once in the system, whatever pay you earn first, TSP is deducted from it and submitted to your TSP account. If you have a big bonus in January of $30,000 and you elect 1% of basic pay and 100% of bonus, if not in a combat zone, then the pay system would deduct $16,500 from the bonus and you're done for the rest of the year, unless you go to a combat zone and begin earning tax-free pay, then you could contribute another $32,500 in tax-free for the rest of the year.

Just stick with the 2009 Qs and As. There are examples for those with a civilian and uniformed services TSP account that contribute to both during the year.

[robert]

Is the earnings on the $49,000 deposited in a TSP that was earned in tax-free combat zones taxable ?

[Kate]

Robert, thanks for the question. Yes, the earning are taxable when withdrawn, but the original deposit remains tax free. Here's the link to the TSP FAQ page: http://www.tsp.gov/faq/faq6.html. The answer can be found in the last sentence of the last paragraph of question 1.

I hope that helps!