Money, Military Retirement - Air Force Times

‘Game-changing’ Roth option for TSP clears House

Congress is poised to add three new benefits to the popular Thrift Savings Plan.

For service members, the big change is a Roth 401(k) option that would let participants put some or all of their after-tax salary into an account that will grow tax-free.

Also in the mix are a survivor benefit that would let spouses of deceased TSP participants maintain TSP accounts and a mutual fund option that would let participants invest TSP money in private-sector mutual funds.

All three are included in HR 1256, which has been passed by the House and is expected to move quickly through the Senate.

However, it is unclear whether the provision authorizing a mutual fund option will survive; the Federal Retirement Thrift Investment Board, which governs TSP, split 2-2 over the proposed addition of a mutual fund option, and a TSP official is pressing key senators to strip it or change it.

The Roth option would be a change from existing TSP funds, in which participants make pretax contributions and pay taxes on earnings at retirement. A Roth would be especially appealing to troops, who usually fall into lower tax brackets early in their careers and finish in higher brackets.

“When it comes to the uniformed services, this is a game-changer,” said Gregory Long, TSP executive director.

In a November TSP survey, 63 percent of military personnel said they wanted a Roth option.

Long said a Roth option is needed to keep TSP competitive with other retirement plans.

“Five years from now, if we don’t have a Roth, it would be difficult for us to make the case that we’re still best in class,” he said.

The other proposal endorsed by the TSP board would let spouses of TSP participants stay in the plan after a participant dies. Currently, spouse beneficiaries must transfer the benefit within 60 days of a participant’s death to an individual retirement account or withdraw the benefit in cash, subject to a 20 percent federal tax withholding.