Maximizing Your TSP Contributions: 2025 Limits and Strategies

11.15.24: Audio automatically transcribed by Sonix

11.15.24: this mp3 audio file was automatically transcribed by Sonix with the best speech-to-text algorithms. This transcript may contain errors.

Speaker1:
Welcome back to the Federal Retirement Show. I am your host, Val Majewski with American Benefits Exchange. Really appreciate you joining us to learn about the information that we are providing to you, the federal employee. And that's what this channel is all about, is providing information so you can make the best decisions for you and your family while you're working and as you enter into retirement. So today we're going to talk about TSP because new limits have come out for 2025. So just so you can prepare and yeah 2024 is coming to an end. We are less than two months away until 2025. I can't believe it's gone this fast. But there are new changes that are going to happen with TSP. The IRS has come out and updated some rules on 401 S, which TSP is the government version of a 401 K. So we want to talk about What are those changes? What are the the new limits and some of the new things that they're adding when it comes to TSP contributions in 2025? First and foremost, your current limit for 2024. Uh, if you're putting into both the traditional and the Roth, your combined total is 23,000 in 2025. That is increasing by $500, and you're able to now contribute 23,500 total combined between the Roth the traditional or combination of both. Right. So 23,500 catch up contribution limits. The normal catch up contribution limit for those that are 50 or older will remain at 7000 507,500. So you've got now 23,000 507,500.

Speaker1:
For those that are 50 and older. Now, it's up to 31,000 total that you can put into your your TSP. But they've come out with this new thing that I'm going to call a super catch up. And I think that's what the IRS is also calling it. Tsp might be calling it something slightly different, but they have a, let's say, a super catch up for those that are age 60, 61, 62 and 63. You can contribute in catch up not just $7,500, but up to $11,250 in your catch up contribution between those ages. So 60, 61, 62, 63, you are now in this super catch up age limit, and your increase to your catch up again is not 7500. You can put an additional $11,250 in per year during that time frame after age 63. It does go back to the normal catch up limits, which are currently $7,500. So just to recap that contribution limits for TSP in 2025, the normal contribution amount will increase to $23,500. Catch up contributions for those that are 50 and older. 7500. The super catch up for those that are age 60 to 63 increases to $11,250 during that time period. Afterword again goes back to 7500. So we get asked a lot of times, should I max out my TSP? Should I put more into my TSP? What should I do? And these contribution limits help. They've been increasing gradually over time so you can put more money towards your future.

Speaker1:
Now why is this important? Why is learning about the contribution limits important for you? Because when I give trainings, when I talk to you and talk to individuals, I say a TSP is your wild card. You may have heard me say this before in our previous episodes, but TSP is your wild card because this is the only part of your retirement income when it comes to your traditional three retirement income sources your first pension, Social security, or the first supplement depending on when you retire and then TSP. And of those three main sources pension, Social Security, TSP. Tsp is 100% or let's call it 99% reliant on you. The government does give you 1% automatic if you do nothing. So let's just call it 99 plus percent reliant on you. You decide how much comes out. You decide how that money gets distributed into what funds all your new contributions. You decide how that money gets invested into those funds and you have to manage it yourself. You go into TSP gov and make interfund transfers or change the way your new monies are spread out. You don't have a financial person at TSP. It is an administered account. It is not a managed account. So that's why it's a wild card. And what's the other reason is because it is going to carry generally the most weight in retirement. So pension Social Security, they're only going to get you so far when it comes to your retirement income.

Speaker1:
If you want to get as much income as possible, or try to get as close to your pre-retirement income in retirement. Tsp will typically, at least in the thousands of individual federal employee benefits and retirement reviews that I've done in my career. Tsp has to make up the most percentage when it comes to your retirement income to get you to your pre-retirement income, so I'll show you an example. Right. Let's say, um, you have 30 years of service as a Fers employee. And you can go back to our previous episodes and you can see how is your Fers pension calculated. But the short version of that is you're going to get 1% of your high three, about 1% of your high three for every year of service. So you work 30 years, you're going to get 30% of your high three and your high three. Let's just say that's around your pre-retirement income. You want to get close to that number. Well now you're at 30%. So you've got to make up 70%. Social security is generally going to pick up another 20 to 25%. So now best case scenario, you've got 30% plus 25. We're at 55%, 55%. Even if you wanted to get to 90% of your pre-retirement income, that's another 35% that you need TSP. Your third income source to pick up. If you want to get to 100%, that's 45% of your pre-retirement income that you're relying on TSP for. So it is a wild card in two things you need to decide what you're putting into TSP.

Speaker1:
You need to manage it yourself, and it's generally going to carry the most amount of weight in retirement. So utilize what the government gives you as when it comes to these contribution limits. I'm not saying you have to go to the full limit or you have to use the maximum catch up. But understand that the more you put aside, the more you're going to have in the future, and your future self is going to love you for the amount of preparation that you've done for retirement by utilizing everything that the government gives you. The first thing in TSP that I'd recommend is the 5% matching, right? If you're not putting in at least 5%, in my opinion, I highly recommend you to do that. Um, this again is my opinion. It's not a mandate, but I encourage you to look into it because there's no better type of money that I know of than free money. And the government wants to give you some free money. You can take advantage of it by putting in at least 5% above and beyond that. That's up to you. But you can go up to those limits and really maximize the amount of money that you're saving in your TSP. So you have more in retirement. Now some people also look at it and say, well, you know, I put in the 5% and I don't want to keep all my money at risk, and I want to look at other options outside of TSP for that money.

Speaker1:
I want to put above and beyond the 5%. That's completely up to you. But just understand if you want that money there in retirement, if you want to have your TSP carry the bulk of your retirement income and try to get you as close to your pre-retirement income in retirement, you need to take advantage of setting money aside for retirement. One of the ways you can do it is utilizing TSP and going up to some of these limits. Now, I certainly do not want you to live in the poor house today by putting too much money aside for your future. So there's a happy medium there of how much you can put aside and still live comfortably today. But also make sure that you've got enough to live comfortably into retirement. There is a middle ground, but just you need to look at those limits and decide how much you can put aside. Another question that we get asked when it comes to TSP. Once. Once you've decided how much you want to put in. People ask about, you know, the Roth portion of TSP because taxes have been a concern for federal employees in the future, and people looking to have as much tax free income in retirement as possible. And we've had we've done episodes on that on taxes and retirement or how to have more tax free money. We talked about Roth conversions.

Speaker1:
I'd highly recommend you go back and try to find our episodes on Roth conversions. A lot of great stuff there, but you can help mitigate your taxes by putting into the Roth bucket. Now, this is not for everybody, but for people that want to put money in and pay the tax today, have that money grow, earn interest, and all the dollars that are in that Roth bucket come out tax free in the end. This could be a good opportunity for you because you can go all the way up to the limit, all the way up to the limit, even with that super catch up and put all of that money into the Roth bucket. So when you look at it, you can put all. Now, granted, I will say the agency matching money will go into the traditional. So you will still have a traditional portion of your TSP, but you can maximize the tax free dollars that you're going to have in retirement because your pension and Social Security are going to be federally taxed at least. And depending on what state you live in, that may also be some state tax. But just understand, you can maximize or try to set up more tax free dollars by taking advantage of that Roth bucket. Let's say you do have the traditional bucket as well, and you said, you know what? I want to try to make that money be tax free. Well, unfortunately, and I'm spoiling a little bit if you're going to go back and watch our Roth conversions video, but you cannot convert money within TSP.

Speaker1:
You have to move it out of TSP into a traditional IRA, and then you can convert it to a Roth IRA. And that money going forward will now be tax free. You've prepaid Uncle Sam, you've prepaid the IRS, you've gotten them out of your pocket, and now you're building tax free money with the interest that you're earning there. All those dollars are going to come out tax free. So there are ways to take advantage, not just of the contribution limits with NTSB and the updates that they're making and the increases. But you can also take advantage of the tax portion of TSP by deciding which bucket you want to put money into. And we get asked these questions all of the time when it comes to, you know, how should I set up my TSP? What funds should I be in is what's the difference between traditional and Roth? And should I go up to the limits? I mean, all this is a personal preference, so I can't give you just a straightforward blanket advice. It's all personal preference, which requires a personal review to go over your situation and your desires and your goals that you want to hit all of those things. So that's why we have the form for you to fill out on our website w w w dot Federal Retirement show.com. You can fill out the form. One of our experts.

Speaker1:
If it's not me personally, we'll be reaching out to do a personal benefits review if you want some additional information. As far as our our pamphlets on Fagley TSP survivor benefits. If you want a copy of the book that I wrote on federal benefits, you can request all of that through the website. When you talk to one of our federal benefits experts, once they follow up with you after your submission. So just utilize all the resources that we have. I said, check out the previous content that we've put out there. Because this channel, this show, this podcast is for you. For the federal employees out there looking for information so they can make the best choices when it comes to their benefits and retirement situation. And it is important to get that individual review done. Because what I'm talking about throughout this show, throughout the federal retirement show, is very generic in nature. It's a high level view. You may have specific questions, your situation may have some unique features to it, and we'd want to review those with you and make sure you've got all the information you need to make the best decisions going forward. So thank you for learning today about the new contribution limits for TSP in 2025. Exciting stuff. You can put more money away for your future. Be sure to go back and look at our previous sessions. There's a lot of great content out there for you, and I look forward to seeing you on a future episode.

Speaker2:
I'm speaking with Lindsay Streeter, senior vice president of Global Military affairs at Bank of America. Lindsay, thanks so much for taking some time for me. I really do appreciate it, sir.

Speaker3:
Matt. Happy to be here.

Speaker2:
Well, I am very happy to have you as well. We are airing this, of course, just right after Veterans Day. And it's an important thing to discuss about the value that veterans bring to our workplaces in, you know, civilian life each and every day. Actually, the Department of Labor says, I think about 180,000 service members transitioned to civilian life each year. Talk, if you will, about that. Just sheer number of people and the skills that they bring to the workplace.

Speaker3:
Yeah, yeah. Matt 180 K a large number. And we're finding that about 18 to 20% of them began their own businesses. So a large number of entrepreneurs there and they need help as well. And understanding how to gain access to capital and and how to network in that in that business space. Um, the skill sets, veterans as a whole bring a myriad of skills, both soft and hard. But in any veteran, what you'll find there about, you know, 10 or 12 skills that are inherited, which is being a veteran, you're going to get the leader, you're going to get a person that's a leader, more importantly, a person that understands the importance of followership. You're going to get a guy that's, uh, that's that's steeped in teamwork. You get a young lady that's able to communicate. You're going to get a service member that's able to problem solve no matter what the situation is. They're going to bring strong work ethic, integrity, adaptability, and a myriad of managerial skills to the table. So you're getting you're getting a valuable person, a valuable teammate to bring into your organization. If you hire a veteran.

Speaker2:
Yeah, it definitely sounds that way from my personal experience as well. All of those qualities that the veterans that I have known, they they all possess. My dad was a Vietnam veteran, and he possessed all of those qualities throughout his life as well. But, you know, taking those skills that you learn during military service and then transferring that to the maybe corporate workplace or just civilian life in general. What are maybe some challenges that that veterans face in making that transition?

Speaker3:
Yeah, Matt, you just named it. The biggest challenge is actually transferring those skills, uh, understanding how those skills apply in the civilian workforce. Um, huge opportunity, uh, military members, their, their military occupational specialties or jobs are written in, uh, in jargon, the military jargon, they're written in a unique language. And, uh, and so when it comes time to transition, a lot of times the veteran doesn't understand how to make the translation. Uh, Or how to really see and represent themselves in this newly translated manner. They don't have the confidence to really represent themselves in this, in this manner, because they're just seeing it for the first time. And so what we've done at Bank of America is we hired a veteran centric recruiter, a veteran himself, that was a recruiter while in the military. And his job is to help those transitioning veterans to to unpack those skill sets. He meets with hiring managers, and he ensures that there's a right fit coming in the front door. And I think that's really crucial. It allows the veteran to quickly assimilate by applying skills that they already feel comfortable in doing, and they feel like they're a valued member of the team because they're able to provide input and effectiveness. Day one walking in the door. So it seems to work for us.

Speaker2:
That's that's wonderful. And and also, you know, talk about your own transition into Bank of America from the military there. Like what was your personal experience? And in, you know, the things that you learned, maybe going through that process and, and how you're able to apply the skills, all of those different skills that you mentioned earlier and more, I'm sure, how that's translated to your success now. I mean, you're you're now senior vice president of global military affairs there at B of A. So obviously it's been a successful transition for you.

Speaker3:
Yeah it was a challenge. More mental challenge than than than any other. Um, you know, I enlisted in the Army at 17 years old. I was scared young kid out of Washington, DC. Uh, 31 years later, uh, I was horrified. Uh, I was horrified in the notion that I was leaving everything that I knew and understood and had mastered, and I was going to to move on into a civilian job somewhere. And so a recommendation to Bank of America, Um, I interviewed the bank before the bank had the opportunity to interview. Interview me. And I did that by understanding what his mission and vision statements were, looking at its core values, and that really hooked me there. I knew that I came to the table, Matt with seven army values that were put into me. They had become a part of the very fabric and fibre of who I was, and I knew I couldn't shake those values. And so I overlaid those values with Bank of America's core values, and I found that they were a perfect match upon understanding that there were a match. I was then armed with the confidence in knowing that no matter where I landed or what I was going to be asked to do by my leadership here at Bank of America, I was going to be okay. So that was my experience with transitioning.

Speaker2:
Well, that's that's wonderful. And as I say, obviously been a very successful one for you. Just about time, Lindsay, for us to wrap things up here though. But anything else that you wanted to mention that comes to mind? Any veterans who might be listening? Some some words of encouragement as they transition into the workplace?

Speaker3:
Yeah, I would like them to understand that they can contact the US Chamber of Commerce if they're looking for opportunities, if they want to come to Bank of America. Our opportunities are listed at careers Bank of america.com. I would also let them know that they can be confident in knowing that America cares about the value and the sacrifice of their veterans, and and they want to welcome them with open arms and provide opportunities for them to continue their employment, that they can take care of their families.

Speaker2:
Very good. Lindsay Streeter is senior vice president of global military affairs at Bank of America. I also neglected to mention he was the Military Times 2023 veteran of the year. So congratulations on that. I guess belatedly here on my part. But Lindsay, thank you so much. I really do appreciate your time, sir.

Speaker3:
Well, Matt, thanks for having me. Thank you.

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