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TSP bonus question
Old 09-12-2007, 12:06 PM   #1
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TSP bonus question

So it looks like the Army is coming out with a incentive program(should be released tomorrow) to try to boost retention goals for O-3. I think I will receive a $25,000 bonus if I commit to sign up for another 3 years. So my question is, if I select to take the deal, and put it all away in the TSP, will that save me from paying taxes on it? Or does anybody have any suggestions on where I should put this?

Thanks
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Old 09-12-2007, 12:11 PM   #2
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Originally Posted by RLTW View Post
So it looks like the Army is coming out with a incentive program(should be released tomorrow) to try to boost retention goals for O-3. I think I will receive a $25,000 bonus if I commit to sign up for another 3 years. So my question is, if I select to take the deal, and put it all away in the TSP, will that save me from paying taxes on it? Or does anybody have any suggestions on where I should put this?

Thanks
This is confusing. Tri Sodium Phosphate is a pretty darn good cleaner, but not where I'd stash paper money.
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Old 09-12-2007, 12:26 PM   #3
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If I were to get a bonus from the military, I'd plunk it all into TSP (and avoid all current taxes )...directly from the TSP.gov site:

If you have not yet made a TSP contribution election, but you expect to become eligible for bonus pay and want to contribute some or all of it to the TSP, be sure to make a basic pay election before becoming eligible for the bonus pay.

I'd consider staying in the reserve beyond 20 if they offered me a bonus!
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Old 09-12-2007, 12:59 PM   #4
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You cannot put all of $25,000 in the TSP if you are talking about the Federal plan. If you are over 50, you can put in the regular amount of around $15,000 plus the catchup of $5000. So long as you have not paid in any to the TSP for the year. These amounts are the total yearly maximums right now.
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Old 09-12-2007, 01:05 PM   #5
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I am a member of the uniformed services and am making contributions from pay that is tax-exempt. Does the elective deferral limit apply to these contributions?
A: No. However, there is another provision of the Internal Revenue Code which limits the total amount of contributions that can be made to your TSP account. For 2007, this limit is $45,000.


Re-enlist from a combat/tax-exempt area!

Sweetana, you are correct for FERS and many service members.
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Old 09-12-2007, 01:19 PM   #6
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I am in FERS (civilian), and this year my limit is $15,500 (+ $5000 over-50). I know, that's not a whole lot different from $15K but thought I'd mention it.
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Old 09-12-2007, 01:55 PM   #7
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So it looks like the Army is coming out with a incentive program(should be released tomorrow) to try to boost retention goals for O-3. I think I will receive a $25,000 bonus if I commit to sign up for another 3 years.
For years the nukes were teased by the rest of the Navy as being "bonus sluts"-- and other less-tactful phrases. (I was enthusiastically guilty as charged.) Despite the envious teasing, the 1980s bonus program caused submarine JO retention to double (from 19% to 38%). Suddenly the Navy's dentists & doctors joined the bonus programs... next the naval aviators... and now even the surface warriors get a bonus. No matter what programs the Navy's assignment officers have tried over the years, the only sure-fire cause that correlates to rising retention is bonus money.

The pendulum still swings. Today's submarine JOs have decided that a bonus is no longer a retention incentive if you're expected to volunteer for an IA during "shore" duty. I heard from one JO that retention beyond the commissioning obligation is down to the single digits-- he gets out next June.

So remember... it's only money. Keep an eye on the combat rotation of the guys who signed up before you.

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So my question is, if I select to take the deal, and put it all away in the TSP, will that save me from paying taxes on it? Or does anybody have any suggestions on where I should put this?
I interpret the TSP website as saying that you can put your normal $15,500 max military base pay into the TSP and then you can follow that up with bonus money until the total reaches $45K. (Or you could do $15K & $25K or whatever combination.) The TSP's software is hypothetically supposed to track your contributions and stop them when they reach those $15.5K and $45K numbers, but I don't know anyone who's tested those limits and verified that they work. Keep an eye on your December statements or W-2s & taxes will be messy.

It's actually a little more than $15.5K & $25K because of taxes. My spouse contributes "only" 92% of her Reserve pay to the TSP because FICA & Medicare are deducted first. You will probably still have to pay FICA and Medicare taxes on your bonus, at the 7.45% rate, so your bonus' TSP contribution will probably be limited to 92%. (To deposit $15,500 of your base pay in the TSP you'd actually have to earn a $16,848 paycheck.) Ironically that 7.45% which you're paying to FICA & Medicare is still taxable income, so you'll have to pay personal federal & state income tax on the 8% that was not deducted from your bonus payment. A $25K bonus will give $1862.50 to those fine federal programs so your personal W-2 will rise by that amount and your 15% tax bracket would mean an additional $279 income-tax payment on income that you actually never touched.

In other words even if you put the entire bonus in the TSP, it'll probably only be 92% of it and you'll have to pay estimated taxes on the $1862.50. So the bonus will actually cost you money.

You'll also have to revise your TSP selection percentages for your bonus pay (before you get it!) as well as your base pay. They're different dialog boxes of the percentage-choice menu. If you select 100% then the system is supposed to "know" to reduce that to 92%. Keep an eye out for a website receipt or a confirmation letter.

I don't know whether officers can get tax-free bonus money in a combat zone the way that enlisted can. It's worth asking the question of the DoD program office-- those guys have to write the instruction from the congressional legislation so they'll know the tax issues. They've screwed it up before (that's another long sea story) but hopefully they have it right by now.

If I were you I'd consider putting all the TSP money into the "S" or "I" funds. International funds are particularly expensive to run, so getting all your international asset allocation for just a 0.03% expense ratio is a steal. If that's too scary then you could choose the "C" or "L" funds. But it's found money and you're pretty likely to be employed for at least the next three years, so I'd say that you could afford to be aggressive.

But again I'd only take the bonus in a combat zone if I was being sent there anyway.
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Old 09-13-2007, 10:19 PM   #8
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Thanks all, that is what I thought I was just confirming. It is true, the message came out today, so now the question is do I give the Army 3 more years. After that I will have 10 years in.

Also I put my money into the Life cycle fund 30. Figuring I will start taking money out around 2025-2035. Does anybody else like the Life cycle funds? It automatically adjusts your asset allocation for you every quarter, I think it is a good deal.
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Old 09-14-2007, 11:22 AM   #9
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Also I put my money into the Life cycle fund 30. Figuring I will start taking money out around 2025-2035. Does anybody else like the Life cycle funds? It automatically adjusts your asset allocation for you every quarter, I think it is a good deal.
If your TSP is your only non-pension retirement asset [i.e. no taxable, or other IRA investments], then yes, the TSP's lifecycle funds are pretty good, especially if you don't like actively managing your retirement money.
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Old 09-14-2007, 04:02 PM   #10
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Lazy lifecycler here too...(TSP and Deferred Comp)
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Old 09-14-2007, 06:16 PM   #11
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I only have 5 yrs to go till I retire from my fed civilian job with the Air Force, and at the same time from the Air Force Reserves, and I'm all in the L2040. Even that's a bit more conservative than I'd like it to be, but I don't want to fool with it on a daily basis, so that's the route I'm taking. If I were you, I'd go no lower than the 2040, allocation-wise. Maybe in my final 6 months I step down to the 2030 lol!
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