[vc_row][vc_column width=”2/3″ el_class=”section section1″][vc_column_text]With the end of the year coming very quickly, it is recommended to take a look at your contributions to see if any adjustments in the amount needs to be made along with checking this year’s tax withholding to make sure that you will not be liable to paying a large amount of income taxes when they are due early next year.
The IRS will soon have next year’s catch-up contribution maximum and the elective deferral amount. There are guesses that the current maximums of $6,000 for a catch-up and $19,000 for elective deferral will be the same for next year. Others have guessed that these amounts will only increase to $500 more for each option.
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If any change is made for next year’s elective deferral amount, it is highly recommended to be prepared before the new year. Be sure to know what day you are paid so that you can make any changes in your contributions in time. The first paycheck that you get next year will be based on any changes made this year. So if there are any changes you want to make for the first pay period of next year, be sure to get those changes in place before the end of the year. You will want to check with your payroll office as to which pay period these changes need to be made to be effective for the first 2020 paycheck.
Another thing you will want to look into is to see how many pay periods there are next year. Normally, there are 26 pps, but from time to time, there will be a year with 27. If thee elective deferral does increase to $19,500, a $750 contribution will max out the amount for a year that has 26 pps. For a year that has 27, the amount would be $725.
Another important thing to get prepared for is your 2019 income taxes in regard to your TSP earnings. The TSPMA (Thrift Savings Plan Modernization Act) did not alter how TSP payouts are taxed or the method on how taxes are held from those payouts. Those who choose an installment of payments seem to get some bad news because of the withholding rules in their first year of retirement.
The TSP has released a new document, which is called Tax Information: Installment Payments to go along with the venerable Tax Information: Payments from Your TSP Account. The latest document refers to installment payments, which are either dependent on whether they are anticipated to go on for a decade or more or on your expected lifespan.
The document states that the TSP has to withhold money as if the individual is married with dependents of 3 for income taxes for any liable amount. However, this can be changed if you select to make another choice. The standard required amount if you do not make a change will generally not be enough for many to cover their income taxes. If you have not made that change this year, you can still do it for the remaining time that is left to have extra amounts to be withheld for taxes. For many people, they would rather have their taxes withheld, instead of having to pay taxes on estimations.
For those that live in a state that does tax retirement earnings, you will want to prepare for your state-level income taxes as well. Unfortunately, TSP does not do withholds on state or local taxes, so be sure to calculate this amount with a professional tool or go over this with your financial advisor so that you have an estimate to pay when due.
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