Planning ahead? You know I am always planning ahead, at least when it comes to finances. (Don’t look in my laundry room.) The 2013 Thrift Savings Plan (TSP) contribution limits have been announced, and it has gotten me thinking about how much money we can really afford to put into TSP. As my husband gets closer to retirement, I’ve realized that we have a limited number of years to continue contributing to TSP, and we’d better start putting in more if I want to reach some magic high number before he retires.

The maximum contribution limits for the calendar year 2013 are $17,500 for regular situations. If you are aged 50 or over, you may make catch-up contributions of an extra $5,500, for a total maximum contribution of $23,000. If you are deployed to a tax-exempt combat zone, you may make total contributions of $51,000 for calendar year 2013, but anything over your regular limit must be made while in a tax-exempt combat zone.

If you are trying to max out your contributions, there is some semi-simple math to figure out how much to contribute each month. First, take the $17,500 and divide by 12 months, which means you would want to contribute $1,458.33 every month. Wow, that’s a lot. You can’t direct specific dollar amounts for TSP contributions, but rather percentages of base pay, special pays, and bonuses. Therefore, you need to calculate what percentage of your pay will equal that dollar amount. The formula is simple:

p = base pay

t = dollar amount of TSP contribution

x= percentage needed to be deducted

the calculation is **t/p = x**

In this equation, let’s imagine that you want to put $500 per month into your TSP and your base pay is $3539, as an E6 with over 16 years of service, using 2012 pay figures. Into your head or your calculator, input 500/3539, for a result of 14.12%. You have to contribute whole percentages, so you would want to contribute 14% of your base pay in order to get $500 per month.

If you are also contributing special pays or bonuses, you’ll have to do some additional math to make sure you get the contribution that you want. Be sure not to go over the limit for your situation – that opens up a whole different set of problems.

TSP contribution directions can be changed via the MyPay system.

The most important thing about contributing to TSP is to start, and then to continue increasing your contribution whenever you get a yearly increase, a promotion, or an increase due to time in service. I’ve yet to hear anyone complain that they saved too much for retirement.

Just FYI: For the new ROTH TSP (which most military members should be contributing to vs the traditional), you must enter a dollar amount and not a percentage. I am glad the TSP offers this for the ROTH, it is a much easier way of setting up your savings.

I thought that a Roth TSP should only be contributed to once the traditional tsp contribution was maxed out? I would love to see an article that kind of explains this a little more.

I am confused as to how switching to the ROTH makes sense. Don't we want to let the amount we already contributed to the traditional grow and compound instead of open a new account?

Sarah, you would earn the same amount of interest on one account at 5000 as you would on 2 accounts of 2500 assuming all factors like compounding frequency are the same in the accounts.

Lets say you earned 10% interest in one year. 5000 x .1= 500: 2500 x .1=250 if you have 2 of those 2500 accounts 250 + 250 is still 500, it's just in two different pots.

Now, if that was in the regular pre tax TSP, when you pulled it out, that $5500 would be taxable, so if you are in the 25% bracket, that 5500 is only worth 4125, a loss of $1375.

If that 5500 was put in the Roth TSP, you theoretically would have already paid taxes on the 5k contribution, and the 500 gain is tax free but since he is in a tax free zone, you will never be paying taxes on the contribution or withdrawal so you are essentially giving yourself $1375 MORE dollars down the road.

At the same time the money he already has in his standard TSP isn't going anywhere, it will continue to gain over the long term, you just aren't adding additional cash contributions to it.

what date should I change to meet maximum amount for 2013

I do have one question, do you know if there are any plans in the pipeline that would allow a servicemember to allocate special pays or incentive pays to the Roth IRA as they can for the original TSP? I would LOVE to be able to allocate the tax free special pays to the Roth.