Deferral limitations


Q. The Internal Revenue Service deferral limitation for 401(k) accounts is based upon a dollar limitation, which is the same for government and service members who contribute to the Thrift Savings Plan. For federal employees wanting to maximize their TSP contributions, this is a simple process on Form TSP-1: You merely take the current IRS limit ($17,000) and divide it by the number of pay periods (26) and you get the amount you should withhold in each pay period ($653.84). If you receive a step increase, or get promoted, or anything else that changes your pay, there are no effects to your present TSP contributions. The only time you need to adjust the forgoing is if the IRS increases the 401(k) limit and you wish to match that limit.

Service members must use a different TSP Form (TSP Form U-1), which only permits them to allocate a percentage of their basic pay (and other special pays if one receives them) toward their TSP account. This isn’t a terribly difficult calculation to generate the right percentage to maximize your TSP contribution, but the problem is that active-duty members have to readjust this percentage every time they get promoted or their basic pay changes. Getting promoted isn’t something that happens too often for officers, but Congress adjusts the basic pay every year (lately in a way that rightfully benefits the troops). Plus, every two years all service members get a longevity bump in their basic pay, too.

This is a huge waste of time for service members that seems like such an easy fix: Just change the Form TSP-U-1 to permit dollars and percentages. Yet I’ve been unable to glean anything from the TSP website or elsewhere on the Internet as to why this is not being changed.

Can you please explain why the TSP and/or Defense Department wastes our time like this?

Full Disclosure:  My wife is on active duty, but, as the family CFO, I end up redoing the TSP-U-1 every year.

A. I can’t tell you why the rules are what they are. This is a question for the Retirement Thrift Investment Board (


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to and view his blog at

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