Question for all youse financial guru's:

I will be spending over half of 20009 in a tax free zone (110' in Bahrain) and a little less than half of 2010.

According to the tax code for exclusionary zones, I will be able to contribute up to $49,000 EACH YEAR (2009 and 2010) into the TSP.

I have three investment vehicles: the TSP, and a ROTH IRA and taxable account with a private investment company.

I intend to invest the max contributions that I'm able. That'll be $5K in the ROTH and $49K into the TSP. However, I'm wavering in my decision as to whether or not to drop $49K each year into the TSP or stick with the normal $15.5 and dump the remainder into my taxable account.

Going with the TSP, the income is no-taxable to begin with. So,I guess there is minimal benefit in reducing my taxable income for the next two years unless you take into account the first 3 months of taxable income in 2009, and the last 7 months of 2010.

Going the other direction (with my private taxable account); the company earns their money based on a yearly percentage of the total value of my portfolio. So, the more I give them, the more money they make for THEMSELVES.

Second, I'm not sure the same $49,000K/yr policy for exclusionary zones applies outside of the TSP. Does anyone know?

It SEEMS the easiest thing to do is to put the money into the TSP. Does anyone see a benefit of going outside of the TSP and into a taxable account when the income will be non-taxable to begin with?

As I mentioned, I will still max out my ROTH contributions with my private company, so I'm not real concerned that my manager may take a pay cut as a result of significantly less contributions into my taxable account. Perhaps it will provide the impetus for him to get my taxable account back into the green.

Ok here goes...

If the amount of tax subtracted from the amount of return you anticipate making on the private account is greater than the return you will make on the TSP than you should go with the private account. Seeing as how that's not too likely right now the TSP is probably your beter bet.

"Second, I'm not sure the same $49,000K/yr policy for exclusionary zones applies outside of the TSP. Does anyone know?"

Trying to find the answer in my tax guide.

As usual, I'm replying late.

The $49,000 limit is called the IRS annual additions limit and it applies to compensation you are able to put aside in your employer's benefit plans.


It is not an "outside" limit.

The annual addition limit only applies to uniformed service members when you make tax-exempt contributions to your uniformed services TSP account. It applies to all employee (deferred and exempt) and agency contributions, which matters if you have a civilian and a uniformed services TSP account.

However the $49,000 limit would not be combined with what goes in a TSP account and benefits you would have with a separate non-Federal employer, like American Airlines (they must also apply this $49,000 limit but only for those benefits in their plan).

Last note, if you are age 50 or older and have earned some taxable basic pay during the year you also are in a combat zone and can put aside up the $49,000, you can also defer another $5,500 on top of that in catch-up.