As we approach the end of the year, today’s note is more practical than critical analysis because the basics are, in many ways, as or more important than all the nuances in financial planning. Financial blogs love hot takes to generate more clicks and advertisement revenue, but I believe it’s critical to address the basics. Specifically, I am addressing the upcoming Thrift Savings Plan (TSP) contribution thresholds and relevant dollar amounts. I will hit the relevant information for both military and federal civilian employees. As you will see below, there is a delay between the election you select in MyPay (https://mypay.dfas.mil/) and the date that election will actually apply to your paycheck.
Military members receive their first paycheck for 2020 on Wednesday, 15 January. This pay date obviously counts as 2020 income and is your first pay period that counts against the new TSP limits for 2020. Accordingly, if you want to evenly spread the deduction across 12 months, you need to contribute $1625 per month to reach the new limit for $19,500. If you are over 49 years old and therefore qualify for a catch up contribution with an increased additional limit of $6,500, you need to contribute an additional $542 per pay period over the 27 pay periods. You can change/update your TSP contributions options directly in MyPay (under the Thrift Savings Plan tab at the bottom left of the initial menu).
I frontload my contributions to TSP for reasons I will explain here, and my wife and I have chosen a tight budget during the first half of each year. Because each military member’s situation (in terms of rank, years of service, specialty pay and all sorts of lifestyle factors) differs wildly, I won’t presume to offer a one size fits all recommendation. If you would like me to assist in the math planning of your contributions, please shoot me an email (firstname.lastname@example.org).
For DoD Civilians:
Civilians will receive pay on Thursday, 2 January 2020 for work during the period of 8 – 21 December 2019. This pay date counts as 2020 income and is the first pay period that counts against the new TSP limits for 2020. Due to some calendar magic, 2020 has 27 pay periods. This chart helps visualize the pay periods:
As you can see, if you want to evenly spread TSP deductions across 27 pay periods, you need to contribute $723 per pay period to reach the new limit for $19,500 (formerly $19,000). If you qualify for a catch up contribution (must be 50 years of age the year you start catch-up contributions)… with an additional limit of $6,500 (formerly $6,000), you need to contribute an additional $241 per pay period over the 27 pay periods. Army civilians can change/update their TSP contributions options through the Government Retirement and Benefits (GRB) Platform – https://www.ebis.army.mil/ (formally called eBis). I would be happy to provide other update platforms if you email me (email@example.com).
A final note about contributions prior to my next post discussing the pros and cons of contributions themselves:
While many readers fall under the Legacy Retirement System (I.e., 2.5% of your salary once you serve a minimum of 20 qualifying years in the military), if you are a Federal Employee Retirement System (FERS) beneficiary or Blended Retirement System (BRS) participant and you choose to stop your regular employee contributions, your agency/service automatic 1% contributions will continue each pay date that you are in a pay status and will be invested according to your most recent contribution allocation on file with the TSP. These matching contributions end when regular employee contributions end.
There are very few hard and fast rules in personal finance, but contributing up to the match you are offered, which is 5% for both BRS and FERS, is one of them. You cannot beat a 100% return and free money.