The Thrift Savings Plan, the retirement savings program for federal employees, will begin accepting Roth-style investments as of May 7, the TSP announced Wednesday.
Since its inception in the late 1980s the 401(k)-style savings program has accepted only pre-tax investments that are taxable along with their earnings when withdrawn. In Roth account balances, investments are made with after-tax money that will be tax-free along with its earnings on withdrawal, as long as certain conditions are met.
“The Roth TSP option offers an important new tool for federal civilian employees and uniformed service members in managing their retirement income by providing greater flexibility in the tax treatment of contributions now and in the future,” TSP executive director Greg Long said in a statement.
Investors will be able to invest through traditional balances, Roth balances or both, up to a combined annual dollar limit that this year is $17,000. Investors aged 50 and older during a year similarly will be allowed to invest in either or both types of balance up to an additional total amount, which this year is $5,500.
Employees designate investments using either TSP forms or an agency electronic system.
Agency contributions on behalf of employees in the Federal Employees Retirement System will be invested in traditional balances regardless of how the employee allocates investments. Those employer contributions can be as high as 5 percent of the employee’s salary, depending on how much the individual invests. Employees under the Civil Service Retirement System, which generally covers those first hired before 1984, get no employer contributions.
The TSP received authority to offer Roth-style investing through a 2009 law and has been working since then to put it in place. It said that not all agencies have completed the needed changes to their payroll systems to make Roth investing available as of May 7; those needing more time are to begin that option as soon as they are able.
The available investment funds will not change. For employees with both types of balances, decisions such as allocations of ongoing investments and transfers among the funds will affect both, and loans and withdrawals will be taken out on a prorated basis.