I have an upcoming deployment and people have been telling me to max out my Roth TSP while I’m deployed since it isn’t taxed.
I currently contribute a set percent of my monthly base pay such that I exactly max out my tsp over the year.
My question is about the math part of this, since people are telling me I need to put the money in while I’m physically over there:
It shouldn’t matter if I max it while I’m physically there, correct?
As long as I max it over the course of the years I’m deployed (deploying over this winter so will straddle 2 tax years), then my tax base will be the same whether I contribute it all while I’m over there versus if I average it over the year, correct? I don’t see how this is wrong, but the people I’m talking to are weirdly insistent that it has to be while I’m physically there, which makes me think I’m missing something.
For example if I’m on a 6 month deployment and say my income is 100k, I’m only getting taxed on 50k, so it doesn’t matter if I invest the non-taxed deployment dollars versus the taxed home station dollars, since the money is fungible and my tax base for the full year ultimately won’t be any different.
Sorry for the dumb and probably obvious question but people are telling me I’m wrong and I’m questioning my sanity.
Dumb question about TSP while deployed.
byu/Strange_Suspect9065 inMilitaryFinance
Posted by Strange_Suspect9065
3 Comments
If you will be earning tax free pay while deployed, yes, you want to put as much as you can into Roth during the period of the tax free pay. It will go in tax free and come out tax free unlike what you’re suggesting where it will be taxed on it’s way into the Roth IRA for any month you aren’t receiving tax free pay.
Assuming you are BRS, I would still leave enough room for 5% in every month so you can get the match, which is a 100% rate of return immediately.
https://militarypay.defense.gov/Pay/Tax-Information/CZTE/
Your pay is not tax free for being deployed, your pay is tax free if you are in a specified tax-free combat zone.
https://www.irs.gov/individuals/military/combat-zones
https://finred.usalearning.gov/assets/downloads/Combat%20Zone%20Tax%20Exclusion.pdf
Just need that to be clear. You might be deploying to a combat zone and that might be why you’re being told you’ll be tax free on deployment. Really depends on who is telling you this.
You’re right. That being said, additional contributions can only be done while you’re physically there.
I always lower my percentages prior to leaving to ensure I had enough to max out SDP, then I jacked up the percentages while I was there