By Capt. Matthew
If you’re in the blended retirement system and are fortunate to max out, or nearly max out, your yearly contribution to your thrift savings plan, listen up! The matching contributions are not as straightforward as they seem.
The current yearly maximum in 2018 you can contribute to your TSP is $18,500. The DoD will match contributions up to 4% from your base pay...EACH PAY PERIOD (each month). So, the problem is that if you reach the $18,500 limit prior to December, you will miss at least one matching contribution. For example, if you reach the limit in September, you will not receive matching contributions for October, November, or December. Again, the DoD matching contributions are calculated for each pay period, not your overall contribution. So, if you can’t contribute in a pay period because you’ve reached the limit, then there is nothing for the DoD to match (though it will still provide the automatic 1% contribution).
This was confirmed when I contacted the TSP agency, as well as by Headquarters Air Force. In fact, as a result of my inquiry, Headquarters Air Force is creating a training video to cover this very topic.
While I’m not any sort of financial adviser, I have discussed this topic with multiple financial advisers who work with the military. I also asked them to verify the accuracy of this article, which they did. Here is what they advised me: be careful with how you contribute if you want to receive all your DoD matches. Do this by pacing your contributions throughout the year in order to arrive in December with at least 5% of your base pay left in the $18,500 limit. Unfortunately, this is not as simple as it seems. Promotion (or demotion) changes your base pay. As does time in service, which will probably change your base pay at least every other year. You’ll have to factor those in. Also, if you’ve already contributed money this year, the math gets even more complicated. And even if you nail down those factors for this year, the maximum limit for 2019 might change as it did between 2017 and 2018, and next year you’ll have to redo your work.
Some may not consider this a problem because BRS is functioning as intended with this respect (albeit complicated). But in my humble opinion this is a problem for several reasons. No warnings in either myPay or a TSP account alert a member that they are on pace to miss matching contributions. Also, it was not in any BRS training, and although that is being rectified for future BRS enrollees, currently enrolled members may not receive that information.
Furthermore, as stated before, members at or near the TSP limit are going to have to do this funny math pretty much every year, and may have to make changes mid-year if/when their base pay changes.
Even further, by requiring members to hold off on making tax-protected contributions in the beginning of the year (to avoid missing matching contributions) and instead invest the money later in the year, members will be missing out on the opportunity for growth. After all, a dollar invested in January will be worth more than a dollar invested in December if the market goes up.
All these issues could be fixed if the BRS were tweaked to where if a person reached the maximum limit early, the same matching contributions would still be given each pay period. This wouldn’t cost the government anything extra because it’s still paying the same amount and at the same times. And it would mean less time spent doing the ever-changing math, fewer chances to commit almost inevitable mistakes, and more money in members’ savings due to growth.
Hopefully, this message reaches everyone with the fortunate problem of reaching the TSP contribution limit. Unfortunately, if it doesn't, then it is likely there are going to be people in BRS who miss out on money they have earned for their retirement. To help with this, Personal Financial Counselors should be available at your installation’s Airman & Family Readiness Center as well as through Military OneSource, for free, and I highly recommend meeting with them. However, not everyone knows this. And for some people, it could already be too late.