Editor’s note: This article by Jim Absher originally appeared on Military.com, a leading source of news for the military and veteran community
The IRS has announced that the maximum amount of money you can contribute to retirement savings plans like the Thrift Savings Plan (TSP) will go up in 2023.
The popular retirement savings plans offer tax-free or tax-deferred income later in life when you choose to stop working. The maximum contribution rates in 2023 will be:
- $22,500 for regular TSP or 401(k) contributions (up from $20,500 in 2022)
- $7,500 for catch-up contributions for those 50 and over
- $6,500 for Individual Retirement Account (IRA) holders, up from $6,000
- Catch-up contributions for IRAs will remain at $1,000.
To contribute the maximum amount to your TSP you should contribute $1,875 monthly, or $937.50 each payday.
Members serving in a combat zone may contribute up to $66,000 of their tax-exempt pay to a traditional TSP plan, those contributing to the Roth TSP are limited to $22,500 annually.
Of course, you can withhold nothing and put the entire $22,500 in at a later date. But if you do that, you lose the Defense Department's 5% match if you are under the Blended Retirement System. You should be contributing at least 5% of your base pay each payday to get the matching funds from the DoD. If you don't, you are basically throwing away free money.
You also shouldn't pay the $22,500 ahead of time, you may also lose the matching government contributions if you do.
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You can change your TSP withholding percentage through the myPay website at any time. That means you can keep it at 5% and then increase it if you deploy or get a bonus.
If you want your withholding percentages to be effective for the first payday of 2023, you must make the change in myPay before mid-December. The Defense Finance and Accounting Service and myPay usually require about three weeks to make any changes to your TSP withholding.
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