Federal Employees News Digest

Informed Investor: TSP Contribution Limits Remain Unchanged for 2017

The Internal Revenue Code places limits on the dollar amount of contributions an employee can annually make to defined contribution plans such as the Thrift Savings Plan (TSP). The IRS announces annually contribution limits to defined contribution plans and to individual retirement arrangements (IRAs).

The IRS recently announced that contribution limits for defined contribution plans and for IRAs will be the same for 2017 as they were during 2016. All Federal employees are eligible to contribute up to $18,000 to the TSP between Jan. 1 and Dec. 31, 2017. Contributions may be made to the traditional TSP, Roth TSP, or to both, but total contributions cannot exceed $18,000. For those employees who are covered by the Federal Employees Retirement Systems (FERS), agency matching contributions - up to four percent - and agency automatic contributions of one percent of an employee’s gross pay are not included in the $18,000 limit.

Those employees who will be at least age 50 as of Dec. 31, 2017 – that is, employees born before Jan. 1, 1968 – are eligible to contribute a maximum of $6,000 in “catch-up” contributions during 2017, the same as in 2016. Employees who are making “catch-up” contributions for 2016 must re-enroll to make “catch-up” contributions for 2017.

IRA contribution limits will also not change for 2017. All employees with at least $5,500 of earned income – wages/salary or net self-employment income -  may contribute a maximum of $5,500 to an IRA. Those employees who will be at least age 50 as of Dec. 31, 2017 may contribute a maximum of $6,500 to an IRA for 2017.

What is changing for 2017 are the income limits that define who qualifies for tax perks for saving in retirement accounts. Victims of Hurricane Matthew will also be allowed to take emergency withdrawals. The 2017 changes are explained below:

Higher traditional deductible IRA limits. Some employees whose income is less than specified limits are eligible to contribute to a deductible traditional IRA. “Deductible” means that the contribution is an “adjustment to income” thereby resulting in reduced income and  instant tax savings. Single employees whose modified adjusted gross income (MAGI) is less than $62,000 during 2017 can fully deduct their IRA contributions. Employees who file as married filing jointly can fully deduct their contributions if their MAGI is less than $99,000 during 2017. The tax deduction is phased out for those single employees with a MAGI between $62,000 and $72,000 during 2017. Married employees have their deduction phased out if their MAGI is between $99,000 and $119,000.

Larger Roth IRA income limits. Employees can have $1,000 more in MAGI ($2,000 if married filing jointly) and be eligible to contribute to a Roth IRA. Roth IRA contribution eligibility is phased out for single individuals whose MAGI is between $118,000 and $133,000 during 2017. What that means  is that single employees whose MAGI is less than $118,000 during 2017 can contribute the maximum possible ($5,500 if younger than 50, $6,500 if older than 49) to a Roth IRA; they can contribute nothing to a Roth IRA if their MAGI exceeds $133,000 during 2017; and they can contribute something but not the maximum to a Roth IRA if their MAGI is between $118,000 and $133,000. For employees who file as married filing jointly, the MAGI phase out eligibility is $186,000 to $196,000. Roth IRA contribution phase out contribution eligibility rules for married employees work similarly to the phase out rules for single employees.  IRS Publication 590-A has “phase-out” worksheets.

TSP contribution limits remain unchanged for 2017

 ▪ Special rules for victims of Hurricane Matthew. Victims of Hurricane Matthew will be allowed to tap into their TSP accounts without the usual restrictions in order to pay for storm-related costs, including expenses that would ordinarily qualify for a TSP hardship distribution. Federal employees who live or work in the parts of North Carolina, South Carolina, Georgia and Florida affected by the hurricane will be allowed to fast-track hardship distributions and TSP loans. An employee who lives outside the disaster area can also take a loan or hardship distribution from the TSP to assist a child, parent or grandparent who lives or woks in the disaster area. The usual six month ban on TSP contributions after a hardship distribution will not apply to the withdrawals taken to pay for storm-related expenses. Distributions taken between Oct. 4, 2016 and March 15, 2017, or in Florida from Oct.3, 2016 through March 15, 2017 by affected TSP account owners, will qualify for the relaxed IRS rules.

Financial advice in the employee’s best interest. Beginning in April 2017, financial professionals who provide advice about TSP and IRA investment decisions will be legally required to recommend investment funds that are in a client’s best interest, not the investments that make the most money for the financial advisor. The new rule will apply only to retirement accounts, and advice provided about taxable investment accounts may be held to the same standard.

Edward A. Zurndorfer is a Certified Financial Planner, Chartered Life Underwriter, Chartered Financial Consultant and IRS Enrolled Agent in Silver Spring, MD.  Tax planning, federal employee benefits, retirement and insurance consulting services offered through EZ Accounting and Financial Services, located at 833 Bromley Street Suite A, Silver Spring, MD 20902-3019 and telephone number 301-681-1652. 


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