Today we’ll ask five questions that will help keep your Thrift Savings Plan (TSP) and 401k retirement savings plans on track in the new year. So here’s your very own New Year’s retirement savings count down.
5. Did you get a raise? Maybe you got promoted or got a bump in pay. Military are getting a 3% pay raise for 2021 and federal employees are getting a 1% increase in base pay. Military retirees, VA disability recipients, FERS retirees and CSRS retirees are all getting a 1.3% cost of living allowance (COLA) increase for this year. If you were able to get along with your previous income you, why not use your raise to increase your retirement savings? One technique I like to recommend is for each raise you get, give half to yourself for now and give the other half to your future self by increasing your retirement contributions. This can help you ease into a more savings year by year with hardly any pain.
4. Are getting your full TSP or 401k match? Remember, you BRS military and FERS civilians need to save at least 5% of your basic pay every paycheck to get the full match. Contribute less than that and you permanently lose out on some matching funds and leave money on the table. Most 401k plans offered by civilian companies offer a match, too. Double check with HR to make sure your getting the most our of your 401k that you can. If you are already getting our full match, or you are a CSRS federal employee or non-BRS military and don’t get a match at all, try upping your game. Most people can’t meet their retirement goals if they only save 5% during their working years. Everyone is eligible save up to $19,500 to your TSP or 401k again this year.
3. Are you getting special pay or a bonus this year? Consider socking all that special pay away for future goals like retirement. Why save all your extra pay for the future? Because if you are counting on that special income to cover your everyday expenses, you can really be screwed if circumstances change and you’re suddenly not eligible for that pay anymore. It can be “here today, gone tomorrow”. Not having that money to fund your wants is a bummer. Not having money to pay your day to day living expenses can be a disaster.
2. Will you turn 50 this year? If so you can save an additional $6,500 a year to your TSP or 401k. You just need to turn 50 anytime in 2021. Even if your birthday is December 31st, you’re eligible to save the entire $6,500 extra. It’s called Catch-up contributions. And another nice thing is for the first time, you only have to fill out one form for TSP to designate both your regular and catchup contributions for 2021. So for you over 50 savers, that $19,500 plus $6,500 for a total of $26,000 a year you can contribute.
1. Are you already saving up to your limit TSP or 401k limit? You can save an additional $7,000 in 2021 to an Individual Retirement Plan (IRA). If you’re married both you and your spouse can contribute $7,000 each, even if your spouse isn’t working. IRAs come in several flavors. Each have different eligibility requirements depending your income and are treated differently for taxes.
Did you mean to contribute to an IRA for you or your spouse last year, but didn’t or couldn’t? You still have time. You can still make 2020 IRA contributions up until April 15 of this year.
Bonus question for you more seasoned listeners. Will you be turning 72 in 2021? You must begin taking Required Minimum Distributions from your TSP, 401k, and Traditional IRAs. Miss this important retirement birthday task and there is a 50% penalty for each distribution you miss.
Thanks for sharing your journey with me with me over the last year. Here’s wishing you and your family a healthy and prosperous 2021. Want more information on how to prosper in 2021? Reach out at katie@moneypilotadvisor.com
