TSP contributions from tax-exempt combat pay

Why combat pay changes TSP math

Most savers meet two ceilings: a limit on their own elective deferrals and a higher limit on total additions. Publication 3 notes that the annual additions limit matters mostly for members of the uniformed services who can exceed the annual elective deferral limit, because the excess contributions go into the traditional portion of their TSP accounts from tax-exempt pay earned in a combat zone. For 2025 the publication gives the figure as $70,000; for 2026 the limit is $72,000 (Notice 2025-67).

Annual additions are the total contributed in a calendar year, per employer, from every source: employee tax-deferred, after-tax and tax-exempt contributions, plus the Agency or Service Automatic (1%) Contribution and Agency or Service Matching Contributions. Catch-up contributions are not counted. The calculator above adds up the three buckets you enter and shows how much room is left.

What the publication says about distributions

A distribution from the Uniformed Services traditional TSP is generally taxable income. The exception is the part attributable to contributions made from tax-exempt combat zone pay. That portion is tax exempt, but earnings on the tax-exempt portion are taxable. The TSP provides a statement splitting taxable and nontaxable amounts, and the publication points to TSPBK26 for the TSP tax rules and to Pub. 721 for related civil-service guidance.

The practical point is that the exempt dollars and the growth on them are tracked separately. Do not assume that a withdrawal is wholly tax free because it began as combat pay, and do not assume it is wholly taxable because it came from a traditional balance. Use the statement the TSP issues when you prepare your return.

Roth versus traditional

Roth TSP contributions are included in income. They are after-tax contributions, subject to the same contribution limits as the traditional TSP, and a qualified distribution from the Roth account is not included in income. The publication treats the Roth balance and the tax-exempt traditional balance as separate things with separate tax rules; it does not say which suits you better, and that depends on your own facts, so a preparer or the TSP booklet it cites is the place to compare them.

A worked example of the headroom check

This example is ours, using only the publication's limit. A sergeant contributes $40,000 of tax-exempt combat pay through the year, receives $1,500 in Service Automatic contributions and $3,000 in matching contributions. The total counted is $44,500. Against the $70,000 limit, $25,500 of room remains. If the same member contributed $68,000 of their own money, the total would be $72,500 and $2,500 would exceed the limit, which is the number to confirm with the TSP before any more goes in.

Where the 2025 numbers come from

Both figures here, the $70,000 annual additions limit and the description of what counts toward it, are from the 2025 edition of Publication 3. Limits are adjusted for inflation, so use the year you are contributing in. The calculator lets you overwrite the limit for that reason.

How this differs from a normal deferral

A traditional deferral from taxable pay lowers the wages you pay tax on this year. Combat pay that is already excluded was never taxed, so contributing it does not lower your current tax. The benefit the publication describes is on the way out: the portion of a distribution traceable to those contributions is tax exempt. That is why the TSP keeps the exempt balance apart and reports it separately.

It also explains why the annual additions limit matters here. Someone with a modest salary and a large amount of excluded pay can contribute more than the usual elective deferral limit allows, and the larger additions ceiling is what stops the total. Pay still has to qualify first; our combat zone exclusion page at /us/combat-zone-tax-exclusion-explained/ walks through which months and which pay count.

Questions worth asking before you contribute more

Check which bucket each contribution lands in, since your pay office and the TSP track tax-exempt, tax-deferred, Roth and after-tax contributions separately. Confirm what the TSP counts as a service automatic or matching contribution for your service component. And keep the TSP statement that splits taxable and nontaxable amounts, because the publication says that statement is what shows the tax treatment at withdrawal.

Limits of this page

It does not compute the tax on a distribution, early withdrawal penalties or required distributions; the TSP withdrawal calculator on this site covers withdrawal mechanics. It also does not model blended retirement system matching rules; the BRS calculator does.

Sources

• IRS Publication 3, Armed Forces' Tax Guide (2025): Income Items of Special Interest, Uniformed Services Traditional Thrift Savings Plan (TSP) distributions and Uniformed Services Roth TSP, including the annual additions limit notes. Read November 2, 2026.

Edition read: Publication 3 (2025), the edition posted on irs.gov on the read date, for tax year 2025 returns filed in 2026. Dollar figures below are the 2025 figures printed in that edition and change every year. This page summarizes the publication and does not replace it.