Re: Catch-Up

Answer: you don't have to deposit a percentage, you can deposit up to $16,500 in any way up to your full paycheck. The author gives good advice--divide that up equally so you get the full government 5% match.

If you are over 50 and you will contribute the FULL $16,500 before the year is out, you can contribute up to $5,500 more as a catch up contribution, in any amount per paycheck you want, up the your maximum available pay. The government will not match any of that.

If you have 26 paychecks per year, that's $635 for TSP, and $212 for CUC. The payroll system is whole dollars, so don't do $634 or you won't get to $16,500. It will put the extra $10 back on your last paycheck.

Re: catch-up

the reason for the limit is that contributions are tax defered, meaning that you dont pay taxes on what you contribut to tsp, but you do when you take money out.
For younger workers a Roth IRA or Roth 401k is a better option because you pay taxes on your contributions, but not on your withdrawls.

Re: catch-up

RCA, you're right - a Roth IRA is definitely a better option. Ideally, a person should FIRST contribute 5% to TSP for the agency matching contribution (free money), second max out their Roth IRA (contributions may go back down to $2k/year/person in 2011), then third increase the amount contributed to the TSP as finances allow.

Re: Pay Periods

It's calendar dependent - check the pay days and you'll find out that every few years there is an extra pay day - the flip side of that coin is that the following year there will only be 25.

It all has to do with bi-weekly instead of bi-monthly - where there would only be 24 pay days per year. It's all the same in the end.

Re: Pay Periods

There can never be less than 26 pay periods if you are paid bi-weekly, there is no flip side 25 pay period year following a 27 pay period year. However, about every 7 or 8 years there are 27 pay periods when the first payday of the year falls very early in January.

Re: Pay Periods

So I can get an understanding of how the pay periods count for TSP. Pay period 26 ends on 2 January 2010, am I correct to count this pay period towards 2010 contributions?

Re: Pay Periods

Yes, whenever there are 27 pay periods the next year still has 26. The reason for this is that 26 pay periods times 14 (numer of days in a 2 week period) equals 364. The extra day (extra 2 days in leap years) is accumulated and after approximately 11 years or so, there is an extra 14 days, which equals a pay period.

Re: Pay Periods

Beware: As IT NOAA points out, some pay periods end or are not paid until AFTER December 31 of a given year.
Since these are tax deferred accounts, this is a matter of concern -- the $16,500 (and $5500 Catch-up) limit is a FISCAL year, not a "pay period" year calculation. This is reflected in your W-2 at year end.

Re: Maximum contribution

It is NOT 15% of your salary. Many years ago there was a percentage limitation, not any longer. The limitations are based on IRS limitations which for 2009 AND now 2010:

$16,500

and if you are 50 or over: $5,500

Re: Hidden tax increase

“This is also a way to collect more taxes” That is not quite accurate. IF you saved $10,000 in your TSP, you would be paying taxes on $10,000 less income. BUT, if that amount grows by a factor of 4 over time, upon retirement you would be paying taxes on $40,000. I.e. (at the 20% tax rate) instead of paying $2,000, you’d be paying $8,000 at the same rate. The government doesn’t losing any money by you socking it away in the TSP. Just as the TSP is tax deferred, so is the collection of those taxes. Hopefully, in retirement, you will be in a lower tax bracket (i.e. paying less than 20%).

Now the Roth is different. At the same tax rate, $10,000 will mean the government reaps $2,000 today but loses the remaining $6,000 tomorrow. Hence, in my opinion, there is SERIOUS case for the government to NOT expand the Roth limits due to lost income.

My personal opinion is that a balanced contribution plan, based on your projected tax bracket in retirement, is the best plan.

Re: 5% government match

The government match is calculated each paycheck. If you deposit 5% of your gross paycheck (or more) in your TSP, so will they.

But, if you have already met the TSP $16,500 limit for the year, you can no longer deposit into your TSP, and the government will have to stop depositing, too. (They can only "match," so they match your zero deposit.)

For example, if you put $1000 into your TSP each paycheck (you can put up to your full available pay in any payday), you would max out your TSP in 17 paydays, leaving 9 paydays without a contribution. The government would match 5% of your pay for those 17 paydays, and nothing for the remaining 9. You would lose at least 9/26ths (about 35%) of your match by paying early.

Bottom line: Make sure you have at least 5% contribution each payday.