TSP

It won’t be long before the Internal Revenue Service announces the new numbers that will apply to retirement savings in 2021.  Every October the IRS lets us know what the savings limits and contribution phase outs will be for the next year, giving us plenty of time to change our savings strategy if necessary.  For those of us still working and still saving for retirement, these numbers let us know how much we are allowed to stash in tax favored accounts such as the Thrift Savings Plan (TSP) and Individual Retirement Arrangements (IRAs).  The income limits apply only to IRAs and let us know whether or not we’re able to deduct our contributions to a traditional IRA or contribute at all to a Roth IRA.

Given the state of the economy and the rate of inflation, it is highly likely that the amounts we are allowed to set aside in our TSP ($19,500) and in an IRA ($6,000) will remain the same for 2021.  The same is almost certain to be true on “catch-up” contributions ($6,500 for the TSP and $1,000 for an IRA).  Therefore, if your goal is to max out your contributions in both vehicles, you can keep on doing what you’re doing.

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If we actually do receive a 1% raise in 2021, we may actually have an increase in our take-home pay.  Of course, I’m ignoring the fact that FEHB premiums may go up and that, for those of you who have optional insurance through FEGLI, premiums go up every five years once you hit the age of 35.

The TSP does not have income limits that affect contributions, but IRAs do.  In the past, even in years of negligible inflation, these limits have crept upwards.  I suspect that we will see more creeping in 2021.  In the 2020 income phaseouts at which you begin to lose your ability to deduct your contributions to a traditional IRA are listed below, expect a creep of $1,000 to $2,000 for 2021.  You can always make non-deductible contributions to a traditional IRA regardless of how high your income is.

Single filing status
Full deduction allowed if income is below $65,000
Partial deduction allowed if income is between $65,000 and $75,000
No deduction allowed if income is over $75,000

Joint filing status if spouse also belongs to a retirement plan at work
Full deduction allowed if income is below $104,000
Partial deduction allowed if income is between $104,000 and $124,000
No deduction allowed if income is over $124,000

Joint filing status if spouse does not belong to a retirement plan at work
Full deduction allowed if income is below $196,000
Partial deduction allowed if income is between $196,000 and $206,000
No deduction allowed if income is over $206,000

Below you will see the 2020 incomes above which your ability to contribute at all to a Roth IRA begin to phase out.  There are no income limits that affect your ability to contribute to the Roth TSP.  Expect a little creep here too.

Single filing status
Full contribution allowed if income is below $124,000
Partial contribution allowed if income is between $124,000 and $139,000
No contribution allowed if income is over $139,000

Joint filing status
Full contribution allowed if income is below $196,000
Partial contribution allowed if income is between $196,000 and $206,000
No contribution allowed if income is over $206,000

If you’re happy with your current retirement savings program, keep up the good work.

If you’re not happy, consider upping your savings.  Even if you reach the maximum contribution limit in the TSP and an IRA, you can sock more money aside in a taxable account.

Coming Up With a TSP Withdrawal Strategy

TSP: Required Minimum Distributions (RMDs) in 2020 and Beyond

Immediate Retirement Under FERS