More than 1 million federal employees who have been delayed in their ability to make Roth-style investments in their retirement savings program will have that option available to them starting July 1, according to the government’s largest payroll service provider.
The Thrift Savings Plan began accepting Roth investments on May 7, but the Defense Finance and Accounting Service was not ready to process that form of investing at the time. DFAS had said that it could accommodate Roth investing for civilian Defense Department employees and employees of other agencies it services in July, although it did not specify a date.
“Our systems will be ready to begin processing requests we receive on July 1,” DFAS spokesman Thomas LaRock said in an e-mail. He said that after a request is processed, employees “can normally expect to see the change take effect in their next paycheck, unless they submitted within a couple days of payday, in which case it would be the following paycheck.”
In addition to civilian Defense Department personnel, DFAS provides payroll services for the Energy, Veterans Affairs and Health and Human Services departments, the Environmental Protection Agency, the Broadcasting Board of Governors, and the Executive Office of the President — about 1.2 million of the 2.1 million executive branch personnel outside the U.S. Postal Service. DFAS also is the pay distributor for active duty military personnel, who also are eligible to use the TSP.
In Roth-style investing, money is invested on an after-tax basis and is tax-free along with its earnings on withdrawal, so long as certain conditions are met. In the TSP’s traditional design, investments are made with pre-tax money that is taxable along with its earnings on withdrawal. Participants may make either or both types of investment, within total annual dollar limits.
In addition to DFAS, some agriculture extension offices whose payroll is handled by the states in which they are located have not rolled out Roth investing, TSP spokeswoman Kim Weaver said in an e-mail. She said the TSP does not have projected start-up dates for those offices, which service relatively few employees.
She said that through last Friday, about 4,000 TSP participants had elected to make Roth-style investments and a small number had transferred in money from other Roth accounts such as those in 401(k) plans of previous employers.
“This take-up rate is consistent with our expectation,” Weaver said. “We anticipate that participation will grow as participants educate themselves about Roth TSP. However, we also recognize that contributing to Roth TSP may not be an appropriate choice for everyone’s financial situation.”
Nearly 2.6 million federal and postal employees have TSP accounts, along with more than 700,000 active duty military personnel. Another 1.2 million people have kept accounts open after separating for retirement or other reasons, although they may no longer make new investments.
Roth-style TSP investing for active duty Marine Corps personnel started June 1. It will begin in October for the other military services.
This post has been updated since it was first published.