Episode Transcript
[00:00:00] Speaker A: Any examples used are for illustrative purposes only and do not take into account your particular investment objectives, financial situation or needs and may not be suitable for all investors. It is not intended to predict the performance of any specific investment and is not a solicitation or recommendation of any investment strategy.
Welcome to Reyna Retirement. Reyna Reyes has dedicated her career to helping people make small, smarter financial decisions. Reyna Retirement is all about breaking down complex financial concepts into language you can actually understand.
Now here's the co founder of American Federal Benefits Consultants, Reyna Reyes.
[00:00:40] Speaker B: Happy day to you. And I think we always remember, I think we all remember that horrible joke in that movie where the mother tomato and the father tomato are walking with baby tomato and the baby tomato just can't keep up. Can't keep up. So the mother tomato walks back to him and stomps on him and says catch up.
Well that's not the kind of catch up we're talking about today. We're talking about the catch up that you can do in the 401k or tsp.
And that one is kind of a bummer. I think that's a horrible joke, but you get it right?
So the catch up that we can do currently is great. It's extra money that you can contribute into your TSP or your 401k or whatever. And the goal is to increase the money that's going into your bucket of money. And we're all familiar with how you can get a tax deduction, right? It's deducting money off of your salary. So if you make $100,000 and you contribute $20,000 into your TSP, then that following year you're only going to be taxed on $80,000 because you contributed 20 grand into the pre tax bucket. It was not taxed. Social Security doesn't even get the alert. You only made 80 grand, they're only taxing you on 80.
So that's still happening. That's not the change for 2026 for next year. You're still able to do some contributions obviously and catch up. But, but, but there's some new information. So there's some new catch up dollar amounts for people of different ages. So this already was happening this year 2025.
So everybody that's over 50 has the ability to do catch up. So normal world, you can add $7,500 in the year 2026 to your already, to the contribution that you're already doing. Okay now all that means is, all that means is you can put more money in if you're over the age of 50. Why? Because some people when they were under the age of 50 are, we're doing life. And they were unable to keep contributing such significant dollar amounts for, into the, into this, into this account. But they're doing this additional catch up for people that were born in 1962 through 1965 where they can, they can do a catch up of $11,250. That's more obviously than the 75.
So what you're looking at is this year, 2025, these are the catch up contributions that you can add, right? So this year we can only put in a baseline of like 23, 500. Next year the base is going to be 24, 500. That's the base. But in 2026 the catch up is going to go up to $8,000, not just to 7, 500. And then of course those that have that special contribution, they're still able to add more.
But in TSP things are changing. And this upcoming year in 2026, you're still going to be able to do the catch up. But if you are considered a high income earner, that is their current level is this 145,000. I'm not sure if that's going to be subject to change, but as it stands, that's the number we're kind of working on. So put it in the back of your mind. If you're making over $145,000 each individual, this is only individual because remember it's an individual that contributes into their own tsp or 401k. So you can still do a catch up, but if you are earning over that dollar amount within the TSP benefit world, the retirement world, not like oh, I have other income, right? Rental income would not count to go over the 145 self employment income that you have in addition, would not contribute to that. Does that make sense? Only your FERS income that you have, or if it's a 401k only that income from your job.
So if your federal employee job has you making over $145,000, then the catch up that you contribute into will not go into the traditional side.
It will still go into your tsp, but that will be forced to go into your Roth contribution. So people say, oh, they're forcing me to have a Roth. Well, first of all, we like a Roth. The Roth is good. But if you're a high income earner, your goal in doing catch up is actually to reduce your taxable income for that year. And that's no longer going to be a thing.
It's going to be the baseline only. That can be pre tax. The additional amount which I'm still a fan of you contributing into will be Roth, which means you get taxed on the Catch up on that. But those dollars will start growing tax free as time goes by. That way, as long as you've had them for five years or more and wait till after the age of 59 and a half, you're able to take that money out. Contributions and growth, no tax.
So it can be a good thing. But you need to be aware of this because if you are one of these higher income earners and you start contributing thinking you're going to get a tax deduction on that extra, you know, $8,000 or $11,000, it's not going to be a tax deduction. It's not going to be reducing your income. It's going to be put into the Roth, which is taxable.
So there you have it. If you're over that income threshold, maybe we want to talk make some plans because again, it makes sense to keep contributing. I say you should. I'm a big fan of the Roth and for a higher income earner to have a Roth it becomes difficult outside.
Of course, you can only do it in the TSP anyway, really, if you are over that threshold. But we just want to know what's going on. Make some plans accordingly and we will see you next year with all the updates and all the planning.
[00:06:35] Speaker A: Thanks for listening to Reyna Retirement. With a strong commitment to ethical standards, Reynolds Raina works hard to find the right solution for each individual or family who reaches out for advice. To contact Rayna directly, call 850-450-6500. That's 850450 6500. Or to reach the team at American Federal Benefits Consultants, call 1-800-872-8857. That's 1-800-872- 8857. You can also go online to americansettaril.org not affiliated with the United States Government. Opinions expressed are subject to change without notice. These opinions are not intended as investment advice, nor do they predict future performance of any product. All information provided is believed to be from reliable sources. However, we make no representation or warranty as to the accuracy of any statement. The information is intended to be educational in nature and does not provide a guarantee or specific result. All copyrights and trademarks are the property of their respective owners. American Federal Benefits Consultants is an independent organization, not a government agency or affiliated with the federal government or any state government. The terms CSRs, FERs, FELI, and FEHB are all registered trademarks of the U.S. office of Personnel Management. American Federal Benefits Consultants, agents consultants, or any independent contractors do not provide tax, legal or investment advice and do not engage in the solicitation or sale of securities. Consult with your tax advisor or attorney regarding specific situations.
