TSP Roth option a step closer


A new retirement savings option for federal employees is another step closer to reality.

The Federal Retirement Thrift Investment Board published draft rules on the implementation of a Roth 401(k) option to the Thrift Savings Plan in Wednesday’s Federal Register. The option would allow employees to invest income that already has been taxed in a Roth account in addition to contributing savings to their traditional TSP account.

The new Roth TSP component will invest an employee's after-tax earnings and cannot be taxed when withdrawn, similar to a traditional Roth IRA. There will be no income limits on earnings from TSP's Roth option as there are on a traditional Roth IRA, which could make the feature more attractive to federal workers and service members.

Federal employees should be able to enroll in the Roth option sometime between April and June, board officials said.

According to the draft rules, employees who choose the Roth option still will receive matching contributions from their agencies; those matching funds, however, will go toward their traditional TSP account balances. The Federal Register notice provides this example as explanation:

“Suppose a [Federal Employees Retirement System] participant elects to contribute 1 percent of his or her basic pay as a traditional contribution and 2 percent of his or her basic pay as a Roth contribution. The employing agency must contribute 3 percent of that employee’s basic pay to the employee’s tax-deferred balance as a matching contribution. Because the employee is a FERS participant, the employing agency must also contribute Agency Automatic (1 percent) Contributions to the employee’s tax-deferred balance whether or not he or she continues to make employee contributions.”

Agencies will continue to automatically enroll new hires into the TSP, contributing 3 percent of their basic pay, unless employees opt out. “The introduction of Roth contributions makes it necessary to establish whether default employee contributions are traditional contributions or Roth contributions,” the draft rules stated.

The Roth option is a “game changer” for younger federal employees in particular, Gregory Long, the board's executive director, said during a recent meeting. It could be a draw for young service members who often receive annual allowances of $20,000 to $25,000 a year and don't want to get hit with taxes if they withdraw their money. The Roth option is a more compelling sell, Long said at that time.

Feds can contribute up to $17,000 in tax-deferred money to the traditional TSP and the Roth option in 2012; a combined investment cannot exceed that amount. The Internal Revenue Service announced last fall that the cap on individual TSP contributions in 2012 would increase $500, from $16,500 to $17,000, as a result of the change in the cost-of-living index. The increase also applies to those who participate in 401(k), 403(b) and most 457 retirement plans. The catch-up contribution limit for those 50 and older remains the same, at $5,500.

The TSP website will have more information this week on the Roth option, officials said.

Public comments on the draft rules must be submitted by April 9, according to the notice.

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
Close [ x ] More from GovExec

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Forecasting Cloud's Future

    Conversations with Federal, State, and Local Technology Leaders on Cloud-Driven Digital Transformation

  • The Big Data Campaign Trail

    With everyone so focused on security following recent breaches at federal, state and local government and education institutions, there has been little emphasis on the need for better operations. This report breaks down some of the biggest operational challenges in IT management and provides insight into how agencies and leaders can successfully solve some of the biggest lingering government IT issues.

  • Communicating Innovation in Federal Government

    Federal Government spending on ‘obsolete technology’ continues to increase. Supporting the twin pillars of improved digital service delivery for citizens on the one hand, and the increasingly optimized and flexible working practices for federal employees on the other, are neither easy nor inexpensive tasks. This whitepaper explores how federal agencies can leverage the value of existing agency technology assets while offering IT leaders the ability to implement the kind of employee productivity, citizen service improvements and security demanded by federal oversight.

  • IT Transformation Trends: Flash Storage as a Strategic IT Asset

    MIT Technology Review: Flash Storage As a Strategic IT Asset For the first time in decades, IT leaders now consider all-flash storage as a strategic IT asset. IT has become a new operating model that enables self-service with high performance, density and resiliency. It also offers the self-service agility of the public cloud combined with the security, performance, and cost-effectiveness of a private cloud. Download this MIT Technology Review paper to learn more about how all-flash storage is transforming the data center.

  • Ongoing Efforts in Veterans Health Care Modernization

    This report discusses the current state of veterans health care


When you download a report, your information may be shared with the underwriters of that document.