Contribution Limits of the Thrift Savings Plan + 401(k) + IRA = ?!?

A reader asks:

I’m in the Air Force Reserve and I also have a full-time job with a 401(k) and employer match benefits. I believe the max I can contribute between my 401k, employer match, AND the TSP that is tax deductible is $18,000. Beyond that number any contributions from myself, my employer, or via the TSP are all after-tax dollars, and I cannot contribute more than $53,000 total between the TSP and 401(k).
Also, the $5,500 for an IRA is not included in the $53,000 limit, and the $5,500 is tax deductible.
Thanks for your time. I appreciate the help you give on the Mr. Money Mustache forum— I lurk for a fair amount of info and I’ve found it all very helpful. Have a good week!

Thanks to this reader for a very insightful question! My learning curve about tax-deferred retirement accounts has flattened out over the last decade, but I learned a lot from looking up the answers.

Other readers may notice potential errors in this reader’s statements. That’s partly due to the wide variety of tax-deferred investment accounts and the word “Roth” that’s mixed in with some of them. It’s also caused by income limits on deductible contributions, contributions from a combat zone, and the type of the account’s tax deferral. Confusion runs rampant.

Even for the same type of account, employers might offer various features and options. 401(k)s are notorious for these subtle differences because the employers can choose among the tax code’s provisions for the options that they feel are most cost-effective. If an employer offers a 401(k) feature, it’s required by law or it helps motivate and retain employees. If an employer does not offer a 401(k) feature, it’s probably because it’s not considered worth the cost of the tracking systems (and audits) to comply with the tax code.

Disclaimer: I asked CFP Rob Aeschbach at MilitaryFinancialPlanner.com to check my research. (Yes, I got schooled.) Everyone’s contribution situation may be different than this reader’s limits, especially with other types of tax-deferred accounts like 403(b)s or SEP IRAs. Before you reach your contribution limits or approach the calendar deadlines, please do your own research from the links in this post and consider checking with a CFP or other financial advisor.

Another disclaimer: To keep this post to a reasonable length, I’m skipping over the catch-up contributions that a servicemember or employee can make starting at age 50. I’m also not going to get into the differences between a traditional IRA and a Roth IRA, or the distinction between a traditional TSP and a Roth TSP. I’m not even going to discuss when a contribution to a traditional IRA is tax-deductible and when it’s not. If those links don’t address your situation then please consult a CFP or a CPA.

Rob would also be happy to answer a free e-mail or a Skype call on the subject. As a fee-only CFP, he doesn’t sell any products: just time & labor. He can help you check your details to make sure that there are no surprises.

Now let’s get back to the contribution limits.

TSPs and 401(k)s

This board makes the TSP rules.

For Thrift Savings Plans and 401(k) accounts: the $18K annual contribution limit does not include employer matches, but the $53K annual contribution limit does include the match. Those numbers can be found at the TSP website’s contribution limits (415 section) and the TSP website’s dual-account contribution limits. This is also summarized in the 401(k) contribution information at the The Finance Buff blog.

The IRC section 402 and section 415 paragraphs are limitations on the individual, not the account. For example, if you have two different employers then you can’t rely on them to track each other’s employee contributions and employer matches. Of course this contribution information is sent to the IRS where their computers might eventually add up the W-2 numbers and determine that there’s an excess contribution. If the IRS computers even find the mistake it might take several years, and by then you’d face large excess-contribution penalties.

$18K is the initial contribution limit from an employee’s pay to a TSP or 401(k).*  If you want to contribute more to the TSP then it has to be as part of a deployment to a combat zone (where your pay is also tax-exempt). If you want to contribute more to your 401(k) then the employer’s 401(k) plan has to permit after-tax contributions. (This is apparently rare, perhaps because of the employer’s extra expense to track the employee contributions.) In either of those cases you’re limited to a grand total (including employer match) of $53K/year, split between the TSP and 401(k) accounts. However if you don’t deploy to a combat zone and your 401(k) does not permit after-tax contributions then you’re limited to a total of $18K/year.

Summary of the contribution limits

The first limit for Reserve/Guard members with civilian employers offering 401(k) accounts is:

• $18K = total employee contributions between TSP & 401(k).

For a servicemember deployed to a combat zone who’s also a federal civil-service employee, then:

• TSP $53K = employee contributions (including combat zone) + employer match

For any servicemember deployed to a combat zone and also having a 401(k) account from a civilian employer:

• $53K = TSP (combat zone) + employee contributions to 401(k) accounts (up to $18K) + employer match.

For any servicemember with a 401(k) plan that allows after-tax contributions, then:

• $53K = TSP (up to $18K) + employee contributions to 401(k) accounts + employer match + employee after-tax contributions to 401(k).
• If this servicemember also deployed to a combat zone then TSP contributions can exceed $18K but the total limit is still $53K.

IRAs

IRAs are separate accounts and their limits are separate from the TSP & 401(k) limits. Whether or not you contribute to a 401(k) or the TSP, you can always contribute up to $5500 of your earned income (or your spouse’s earned income) to your IRA. If you’re over a certain income limit then the contribution to a traditional IRA might be non-deductible, and a different income limit might force you to contribute to a traditional IRA instead of a Roth IRA. But that has nothing to do with the TSP and 401(k) limits. IRS Publication 590 includes all the rules & limits for IRAs.

If you’re seeking additional details without having to read the tax code, then this MOAA article contains a detailed analysis of Roth IRAs, traditional IRAs, and how much to invest in the TSP vs 401(k). It’s written by their staff CFPs. If you still have questions about your situation after reading these articles, then please contact Rob Aeschbach or your financial advisor.

[* Yes, it’s tax-deductible if it’s contributed to a traditional TSP or 401(k). It’s not deductible when it’s to a Roth TSP or Roth 401(k). But we’re not getting into those details in this post.]

Related articles:
Is The Roth TSP Right For You?
Military Financial Planner: Can You Invest In Both The TSP And A Roth IRA?
USAA: Know the Contribution Limits of Your Retirement Plans