Q: I was putting $10 per pay period into my TSP account. I increased it to $400 per pay period and my state and federal tax amount withheld went substantially lower. Is this correct and should I adjust my exemptions?
A: It is probably correct since deferring your pay into the TSP reduces your taxable income for the year of the contribution. You should consult your tax preparer about the appropriate withholding rate, but if your taxable income is lower, it makes sense that your withholding should be lower.
