Money and Mobility: For Military Personnel and Families

How Much Money Can I Put in My Thrift Savings Plan (TSP) Account?
By Miriam Darden Settles, CFP®, Communications, Federal Retirement Thrift Investment Board

You get to decide how much money to put in your Thrift Savings Plan (TSP), subject to annual limits set by the Internal Revenue Code.  The money you put into your TSP is called an employee contribution.

As a military member, you have two potential sources of employee contributions:  your taxable pay (basic pay, special pay, incentive pay, and bonus pay) and your tax-exempt pay (pay that you receive while serving in a designated combat zone).   Each is subject to different rules and contribution limits.

Contributions you make from your basic pay, special pay, incentive pay, and bonus pay are tax-deferred.  This means the money comes out of your pay before taxes are calculated; therefore, less of your gross pay is withheld for the IRS. You must elect a percentage of contributions from your basic pay in order to also make contributions from your special pay, incentive pay, and/or bonus pay.  You cannot make contributions to the TSP from your housing or subsistence allowances.

The contribution limit that applies to basic pay, special pay, incentive pay, and bonus pay is called the elective deferral limit.  For the 2009 calendar year, the limit is $16,500. When you complete the necessary information to make your contributions, you will be asked for the percentage of your pay that you want to contribute.  Regardless of the amount of your contribution election, the TSP has controls in place that will not allow you to exceed the IRS limit.     

Be aware, though, that the elective deferral 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 2009 is $16,500.  This is true no matter how the amount is distributed between the plans.

If you are age 50 or older in 2009, you can contribute additional money using what is called a catch-up contribution.  You cannot make catch-up contributions from special pay, incentive pay, bonus pay, or tax-exempt pay.  The IRS limits your 2009 catch-up contributions to $5,500. 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.

The other source of pay that is eligible for contribution to the TSP is tax-exempt pay.  If you are serving in a designated combat zone, the tax-exempt pay you are earning can be contributed to the TSP.  There are two important things to remember regarding tax-exempt contributions.  First, they are always and forever tax-exempt - even when you withdraw them.  Only the tax-deferred accumulated earnings on those contributions are taxed when you withdraw them.  Second, when you make tax-exempt contributions, the limit increases to $49,000  soif you are serving in a designated combat zone, you can put a lot more money into the TSP than the elective deferral limit permits.

Keep in mind that if, in 2009, you contribute both tax-deferred and tax-exempt money to your TSP account, the maximum combined contribution limit is $49,000.  If you are age 50 or older in 2009, you can still contribute an additional $5,500 in catch-up contributions from taxable basic pay.

You must 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, and for catch-up contributions, use the TSP-U-1-C, Catch-Up Contribution Election Form.  Paper forms have to be submitted to your service representative because your service calculates the contribution and deducts the appropriate amount from your pay.

Next month:  How do I figure out what to do with the money in my TSP account once I start making contributions?

Bailout Package to Help Military Families
By Ian Burgess, LT, USN, Command Financial Specialist

It's known as the Homeowner's Assistance Program (HAP) and is run by the Army Corps of Engineers.  Primarily started as a program to assist families negatively impacted by base-realignments, new regulations have expanded it to include "members of the Armed Forces permanently reassigned [PCS] during the mortgage crisis."

This program has two main benefits that are ultimately intended to limit your losses on the sale of your home when you move to your next duty station.  The two categories are private sale reimbursement and government purchase.  If you sell your house for less than 90% of what you bought it for, then you will be reimbursed up to 90%, including the closing costs.  You would be responsible for the remaining 10%, which wouldn't be too bad if you put anything down at your purchase time.  If your house fails to sell at a reasonable price after 120 days, the government will buy it from you for 75% of the original purchase price, or the current total amount of outstanding mortgages, whichever is greater.  Unfortunately, any benefit paid to you will be taxed as regular income.

There are some pretty specific dates you must meet to qualify for the program.  First, you must have purchased or signed to purchase you home prior to 1 July 2006.  Then, the home sale must result from PCS orders issued on or before December 31, 2009, and finally, the application must be received by March 31, 2010.  The recent suspension of PCS orders creates a small window of opportunity so if you qualify, act fast and remember that you must mail in the application.

Here are a couple more restrictions to keep in mind.  Foremost, these benefits only apply to your primary residence.  Standard PCS guidelines apply, for example, you must actually relocate more than 50 miles.  The maximum government purchase amount is $417,000 for most areas and up to $729,750 for some parts of the country with a higher cost of living.  If you are interested in buying a house from the government, listings are available at the Army Corps of Engineers website or HomeSales.gov.

If you think you or a friend might benefit from this program, please visit the website (http://hap.usace.army.mil), review the guidance, and download the application.  Specific procedures are still being developed which could delay any benefits up to six months so make sure you're prepared to wait.