TSP Roth?

[tsptalk]

TSP board collects input on potential plan changes
[FONT=Arial,Helvetica,sans-serif]By Amelia Gruber[/FONT]

The executive director of the Thrift Savings Plan is seeking feedback from federal employees and agencies on potential changes to the 401(k)-style program, including automatic enrollment of new employees and the addition of a Roth Individual Retirement Account option.

At a monthly TSP board meeting Tuesday, Gregory Long said he is in the process of gathering information to weigh the benefits of adding these new features against the administrative challenges and other drawbacks. Long said the board also is looking into the prospect of changing the default fund for investors who don't express a preference from government securities to the TSP's mix of life cycle funds.

Long said comments from labor organizations and other groups on the Employee Thrift Advisory Council and agency payroll offices should arrive in time for consideration at the board's June meeting. All three reforms would require congressional approval.

Full story: http://www.govexec.com/story_page.cfm?articleid=36996&dcn=e_gvet

 

[ChemEng]

Id use the TSP Roth if it were an option--especially if it allowed the use of the 5 funds.

Out of curiousity, how would the % match apply to it (if at all)? I would much rather have my 5% matched post tax dollars instead of pretax given the option.

 

[CountryBoy]

The TSP Roth sounds good, but what concerns me is ensuring our IFT's are good the next day, if made by noon based on the following comment in the story. They have a pretty good record on that and I'd sure hate to lose this bit of nimbleness.

" The Roth option would be especially burdensome from an administrative standpoint, because such accounts allow employees to make after-tax contributions. TSP contributions are currently made on a pre-tax basis, which means they do not count toward employees' taxable income, but are taxed later upon withdrawal.

With a Roth option, agencies would need to find a way to track both pre- and after-tax contributions, since the rules are different for each. Employees could not take out loans against savings in a Roth account, for instance."

If it added anymore confusion, I'm afraid our IFT's transfer period would become less reliable, fed holidays seem to throw these folks off, what confusion would this cause and would our admin costs remain low or would they increase?

Oh well, this is sure above my paygrade. :laugh:

CB

 

[SkyPilot]

One can do a ROTH now without TSP. What would the advantage be of involving TSP in such an endeavor?

 

[Eldritch Flatus]

If it ain't broke, don't fix it!
However; If you are military, break it,
If you are a gummint employee, fix it till it is.

 

[tsptalk]

One can do a ROTH now without TSP. What would the advantage be of involving TSP in such an endeavor?

Are you thinking - get your 5% match in TSP then put the rest into a Roth? I can see that. I guess if someone didn't want to do both, the matching contributions would be the lure. Plus it may get us around the Roth IRA contribution limits.

 

[swsop]

No 'Roth' TSP Proposal Upcoming

The TSP has decided not to seek, at least not for the next
several years, a "Roth" type investment option in which investments
would go in after-tax but come out--along with associated earnings--
tax-free. Such an arrangement would be a reversal of the TSP's
traditional design of pre-tax investments but taxable withdrawals.
Many similar private sector investment plans now offer Roth options.
However, the TSP for now has decided not to seek legislation to
create a Roth feature, largely because of concerns that the cost
and effort to change the system and educate investors could
outweigh the benefits, especially since not all investors would
qualify under IRS rules for a Roth account and that type of
investing would be more advantageous than the traditional formula
for only some. The TSP expects to take another look at the
option in several years.

Automatic Investing Backed

Meanwhile, the TSP will seek legislation that would require newly
hired federal employees to invest 3 percent of salary unless
they choose a different level or choose not to invest at all.
Under current policy, newly hired employees must opt into the
program, one reason that the participation rate for FERS
employees--the retirement system for all newly hired employees
except for those returning after breaks in CSRS service under
some circumstances--is only about 86 percent (those who don't
"participate" by investing some of their own money still get an
automatic 1 percent of salary contribution, but they miss out
on matching contributions). The TSP also will seek to change
the default investment fund--where money is put if investors
don't make any investment allocation--from the government
securities (G) fund to the lifecycle (L) fund whose maturity
date is closest to when the newly hired employee would be age
65. The TSP governing board meanwhile has taken a stand against
legislation that might require disinvestment of funds from
certain companies on social or political policy grounds;
several pending bills in Congress could lay the groundwork for
disinvestment in companies deemed to be doing business with
terrorists, the Sudanese government or the Iranian energy
sector.


SWSOP

 

[SkyPilot]

Are you thinking - get your 5% match in TSP then put the rest into a Roth? I can see that. I guess if someone didn't want to do both, the matching contributions would be the lure. Plus it may get us around the Roth IRA contribution limits.

Exactly. I think... Using this technique (as you described) for those who are interested in a Roth would place any resulting burden where it belongs, and leave the rest to continue to enjoy a system that by most accounts functions pretty well at minimal cost.

The beauty is in the simplicity...