The Thrift Savings Plan is preparing a series of educational materials about potentially complex investment choices for federal employees related to its upcoming launch of a Roth alternative.
The 401(k)-style retirement savings plan remains on track to begin offering Roth investments in the April-June period but the outreach effort has started and will continue through the year and become part of the program’s ongoing communications to participants, agency officials told the TSP governing board Monday.
The TSP traditionally has featured only pretax investing of money that on withdrawal is taxable along with its associated earnings. In Roth balances, investments are made with after-tax money that is tax-free along with its earnings on withdrawal if certain conditions are met.
Officials said that the TSP will stress to investors that traditional vs. Roth-style investing will allow for customization and will not be an either-or choice. Participants will be allowed to invest in one or the other or both, up to a combined annual dollar limit that this year is $17,000. Those 50 and older can invest an additional $5,500 this year.
The TSP also will suggest that investors discuss the matter with a financial adviser, although the agency does not give specific advice and does not recommend individuals or companies.
The TSP has posted some written materials and an introductory video at www.tsp.gov , and further mailings and online features are upcoming. These will include an account growth calculator allowing for comparisons of investing in each type of balance, updated publications over the next several months, and a withdrawal calculator in August.
Deciding between the two types of investing will require an assessment of both current and future tax liabilities, officials said. “What’s so elusive here is what you think your tax rates are going to be in the future,” said board member Ronald D. McCray.
“One of the most powerful forces in these situations is inertia,” added board member David A. Jones. “Trying to overcome that will be a challenge.”
TSP officials said that the addition of Roth-style investing will be a long-term initiative. They noted that only last month did more than 20 percent of participants who are under the government’s largest retirement program, the Federal Employees Retirement System, have any investments in the lifecycle funds, which began in 2005. Those funds mix investments in the TSP’s five stock and bond funds according to a projected withdrawal date.
Also in January, the TSP crossed the $300 billion mark, boosted in part by positive stock market returns. The TSP has more than 4.5 million participants, including active and retired federal and postal employees and uniformed services personnel.
Meanwhile, a consulting firm recommended broadening the program’s international stock index fund by adding Canada to the countries the fund tracks, although it did not recommend adding emerging market countries to that fund or making any changes in the other investment funds. Further, Labor Department officials told the board that several recommendations from prior audits of TSP operations remain unresolved; they expressed concern in particular about the TSP’s potential vulnerability to unauthorized access to accounts.
The board also recognized the pending retirement of two TSP employees who have worked for the agency since its inception in the late 1980s, spokesman Tom Trabucco and director of participant services Penny Moran.