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House committee OKs Roth option for TSP

The House Oversight and Government Reform Committee approved legislation Wednesday that would create a Roth option for the TSP, which experts say would be a boon to service members who participate in the program.

Under a Roth option, participants would pay taxes when they make contributions to their TSP retirement investment accounts. When they retire and withdraw those funds, they would not be taxed. That differs from the current tax-deferred TSP plan, where contributions are taxed at the time of withdrawal.

The Federal Retirement Thrift Investment Board, which oversees the TSP program, said service members are most likely to benefit from a Roth option, since their current tax rates are likely to be lower than future tax rates. Civilian employees usually will pay lower taxes in the future, which the board says makes a Roth option less beneficial for them.

The legislation also would automatically enroll new federal civilian employees — but not new service members — in the Thrift Savings Plan.

Title IV of HR 1256, the Family Smoking Prevention and Tobacco Control Act, originally would have automatically enrolled new service members in TSP. But an amendment attached to the bill by Rep. Darrell Issa, R-Calif., would leave it to the Pentagon to decide if troops should be automatically enrolled.

Issa said it might not be fair to include service members since the Defense Department does not match their TSP contributions. Civilians under the Federal Employees Retirement System receive matching contributions from their agencies.

The bill would automatically enroll new civilian employees in the government securities-backed G Fund, which does not decline in value and is widely viewed as the safest TSP fund. The bill recommends automatically enrolled employees invest 3 percent of their paychecks in TSP, though it allows the board that oversees the program to set the default percentage anywhere between 2 percent and 5 percent.

Another approved Issa amendment would require the Pentagon to study how much matching service members’ TSP contributions would cost and whether it would help recruitment and retention. Issa said the time has come to give service members matching TSP contributions, though it could cost billions of dollars.

“Our men and women in uniform are treated disproportionately and poorly when it comes to TSP,” Issa said.

Rep. Edolphus Towns, D-N.Y., the committee chairman, agreed.

“We should provide top-notch retirement benefits to our uniformed military personnel,” Towns said.