2012 Brings TSP Changes
Miriam Darden Settles, CFP®
Federal Retirement Thrift Investment Board
Source: Military Saves
Important changes are coming to the TSP in 2012! Here are some key points to remember.
Your TSP Contribution Limits
Each pay period, you may contribute as little as one percent of your pay to your TSP account. You may contribute up to the amount that the Internal Revenue Code (IRC) allows each year. For 2012, some of the IRC limits have changed.
» The maximum you may contribute from your taxable pay will be $17,000.
This is the elective deferral limit. Be aware that this limit applies to all eligible employer plans. So, if you are in the Ready Reserve and have a TSP uniformed services account, but you also have another eligible employer plan such as a 401(k) or even a TSP civilian account, the most you can contribute in 2012 is $17,000. This is true no matter how the amount is distributed between plans.
» If you contribute tax-exempt money, the maximum contribution limit increases to $50,000 for 2012.
This is the annual addition limit. So, if you are serving in a designated combat zone, you can put a lot more money into the TSP than the elective deferral limit permits. Remember that your tax-deferred contributions are included in this limit, and the maximum for those contributions will still be $17,000 for 2012.
Keep in mind that if you also contribute to a civilian TSP account, you are still subject to a combined limit of $50,000 of employee and agency contributions to both accounts for the year.
» If you are age 50 or older in 2012, you can contribute additional money to your TSP account using what is called a "catch-up contribution."
You can only make catch-up contributions from tax-deferred basic pay; you cannot use special pay, incentive pay, bonus pay, or tax-exempt pay. The IRS limits your 2012 catch-up contributions to $5,500 (this is unchanged from 2011).
Once again, if you have both a TSP uniformed services account and another eligible employer plan, such as a TSP civilian account or a 401(k) plan, the limit is $5,500, regardless of how you decide to distribute your contributions among your plans. Remember that the catch-up contribution limit is separate from the elective deferral limit and the annual addition limit.
Contributing to the TSP is Easy!
You can make your contribution election through your service or through your electronic payroll system. Paper forms are also available at www.tsp.gov. For contribution elections, use the TSP-U-1, Election Form; for catch-up contributions, use the TSP-U-1-C, Catch-Up Contribution Election Form. Paper forms must be submitted to your service representative because your service calculates the contribution and deducts the appropriate amount from your pay.
We're Getting Ready for Roth
Many participants are uniformed service members who want to be able to contribute after-tax money to their TSP accounts and have the opportunity to make tax-free withdrawals at retirement. In response to requests from our participants, the TSP will be introducing a Roth contribution option in 2012.
Of course, there are a few things to know before you can determine whether Roth is right for you and what's required to get those tax-free distributions. The TSP will have the information and tools you need, including how Roth contributions are applied to the IRC limits discussed in this article, when it introduces Roth.
Look for a special Roth information leaflet that will accompany your 2011 year-end annual participant statement. If you receive your statements electronically, you will receive the leaflet in the mail.
The upcoming changes to the TSP are designed to help make it easier than ever to save for your future. Get to know them
You can only make catch-up contributions from tax-deferred basic pay; you cannot use special pay, incentive pay, bonus pay, or tax-exempt pay. The IRS limits your 2012 catch-up contributions to $5,500 (this is unchanged from 2011).
Once again, if you have both a TSP uniformed services account and another eligible employer plan, such as a TSP civilian account or a 401(k) plan, the limit is $5,500, regardless of how you decide to distribute your contributions among your plans. Remember that the catch-up contribution limit is separate from the elective deferral limit and the annual addition limit.
Contributing to the TSP is Easy!
You can make your contribution election through your service or through your electronic payroll system. Paper forms are also available at www.tsp.gov. For contribution elections, use the TSP-U-1, Election Form; for catch-up contributions, use the TSP-U-1-C, Catch-Up Contribution Election Form. Paper forms must be submitted to your service representative because your service calculates the contribution and deducts the appropriate amount from your pay.
We're Getting Ready for Roth
Many participants are uniformed service members who want to be able to contribute after-tax money to their TSP accounts and have the opportunity to make tax-free withdrawals at retirement. In response to requests from our participants, the TSP will be introducing a Roth contribution option in 2012.
Of course, there are a few things to know before you can determine whether Roth is right for you and what's required to get those tax-free distributions. The TSP will have the information and tools you need, including how Roth contributions are applied to the IRC limits discussed in this article, when it introduces Roth.
Look for a special Roth information leaflet that will accompany your 2011 year-end annual participant statement. If you receive your statements electronically, you will receive the leaflet in the mail.
The upcoming changes to the TSP are designed to help make it easier than ever to save for your future. Get to know them.
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