Why doesnt the TSP offer a ROTH now

[roskopfm]

Its amazing that the private sector has had the option of adding a roth option to their 401K plans since 1/1/06 but the TSP board hasnt asked congress to authorize it for federal employees. What are they waiting for? The employee survey showed people are interested in it. Many people (in higher income brackets) can't invest in a Roth IRA because of income restrictions. I hope the TSP board doesnt stall to long before they add this option to the TSP.

 

[tsptalk]

Welcome roskopfm. That's a good question, and while we have discussed Roth IRA's before, I'm not even sure I've heard anyone ask that one. Why not a Roth option?

 

[tsptalk]

It would entail an enormous effort to overhaul our systems and communications materials, implement an after-tax retirement savings program in addition to our current pre-tax program, and educate 3.5 million participants about how to choose wisely between the two approaches.

I can see the effort and cost issue, but since when was educating participants a concern?

 

[SkyPilot]

How many million (of TSP funds) was spent (wasted) to "educate" us regarding the "L" funds?

Did you get your CD-ROM? :nuts:

I can see the effort and cost issue, but since when was educating participants a concern?

 

[tsptalk]

Oh, yeah.

 

[roskopfm]

Any employee in the 10% or 15% bracket and expect to be in a higher bracket at retirement would benefit. For Example for simplistic purposes say you invest 1000 today in a IRA at 7% return in 5years this would be worth $1967. Say you were in still in the 15% bracket, you would net $1672.
Now suppose you invest the $850 (1000 lesss 15% tax) after tax in a Roth. In 5 years at 7% return you would have $1672. Same answer unless you are in a different tax bracket.
If you retire in 5 years and are in the 25% bracket the $1967 in an IRA would only be worth (1967*75%)=1475 So it doesnt matter on the market all all, you would be definately better off in a Roth just for the tax benefit.
On the flip side, say your in the 25% bracket now, and expect to be in a lower braket at retirement.. then a IRA would be better than a roth. But why not give us the choice.

 

[SkyPilot]

All the reasons the Thrift Board offer may or may not be valid. However, if they would establish an alternative plan, those who participate in it could (and should) fund it just as the Thrift Savings Plan is self funded.

This would seem to answer in a substantial fashion the various objections that have been raised.

However, the cost of such an alternative without subsidies from the current plan would possibly negate the advantage that might be realized.

In any case, I think this would need to be a stand alone and stand apart plan from TSP, e.g., a TSP as well as a "TSP (ROTH)" plan.

How many millions would be needed for a start up?

In addition, what would be the advantages of a TSP Roth over a private Roth, which is available to anyone who would choose one now?