Roth Thrift Savings Plan Option Will Soon Be a Reality for Members of the Military

by Hank

tsplogosmallAt its April 2009 monthly meeting, the Federal Retirement Thrift Investment Board which runs the federal Thrift Savings Plan (TSP) considered the addition of a Roth 401-k feature to the TSP. The Thrift Savings Plan is the federal government’s version of a civilian 401-k retirement plan.  The board members voted 3-1 in favor of recommending that the Congress authorize a Roth 401-k feature in the TSP.  Unlike civilian plans in which companies and their Human Resource departments can change their retirement and 401-k plans fairly easily, the federal Thrift Savings Plan is govern by laws passed by Congress.  Changes that are suggested must go through a rigorous vetting process, approval, and passage of a new law by the entire Congress.

The new law which was passed by Congress recently authorizes adding a TSP Roth 401-k feature.  Participants will be able to contribute after-tax dollars under the feature. Like regular contributions, the Roth contributions will grow tax free. However, unlike regular TSP contributions, both the contributions and earnings are tax free when withdrawn.  

Unfortunately, it will be quite a while before the changes will be implemented in reality down at the troop level.  The Roth TSP feature will require substantial modifications to federal and military human resources and payroll systems.  The changes will also require several changes to the TSP’s paperwork, correspondence with investors, record keeping, and accounting systems.  The board estimates that the addition of a Roth 401-k feature will take up to two years to finally work its way down to the “boots on the ground” level.

Thanks to Your Military Money for the heads up on the new Roth TSP action.

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