And here is what Federalnewsradio.com wrote about it:
By Dorothy Ramienski
FederalNewsRadio
There are changes coming to the Thrift Savings Plan.
On Monday's Daily Debrief, Penny Moran, Director of Participant Services at the TSP, told Amy Morris about the new Roth IRA option.
"Currently, participants who are eligible, to withdrawal their TSP accounts as an age-based in-service withdrawal or a post-separation withdrawal, can transfer their funds to a traditional IRA or another eligible employer plan, like another 401k. . . . Within the next few weeks, we're going to be adding a third option, or third destination, if you will, and that is to a Roth IRA."
The difference, Moran notes, is that, unlike a transfer to a traditional IRA or other eligible employer plan, Roth IRA's have strict restrictions regarding who can transfer money into the accounts. There are also immediate tax consequences.
"For those folks who are thinking about Roth IRA transfers, we are strongly, strongly encouraging them to talk to a tax advisor to look at the benefits and make sure that they understand the eligibility requirements and the tax consequences before they request the transfer."
But why transfer TSP funds into a Roth IRA in the first place?
"Roth IRA's do provide the advantage of tax-free growth on, essentially, after-tax dollars. So that may help folks with their tax situations in the future, but it's a very individual kind of a situation and they need to understand where they think they're going to be in terms of their tax situation down the line."
Moran says not everyone is eligible to do this, however.
"You're not eligible for a Roth transfer if either one of the following conditions apply: your modified adjusted gross income is over $100,000 or you're married and file a separate return."
Even if a federal employee is eligible, there are some constraints.
"If you transfer that money, you're going to have to pay the taxes on that money either way. For example, if you transfer your money from the TSP to a Roth IRA this year, when you file your tax return in 2009, you're going to have to pay the taxes on the amount of money that you transferred to that Roth IRA. It's very similar to taking a traditional IRA and converting it to a Roth IRA."
Moran says no one at the TSP wants to encourage or discourage this type of transfer. Her job, she notes, is to simply make sure that TSP participants know this is an option.
"For some folks, it might be a really good idea. We just want to make sure that they have it right before they do it. . . . If you pay the taxes on it now, and, in the future, you're in a higher tax category, then you basically have tax-free growth on all of that money as long as you leave it in the Roth IRA for five years."
The bottom line: talk to your tax advisor or financial planner. He or she can give you the best options and let you know what's right for your situation.
The TSP will have some FAQ on their website about this new transfer program, but, Moran says, please remember that the TSP does not give tax advice to participants.
The change is expected to come in mid-February. Stay tuned to FederalNewsRadio AM 1050 for continuing updates.
