Military enrollment in TSP Roth spikes

The number of service members enrolled in the Thrift Savings Plan’s Roth option grew nearly 300 percent in just one month last year, according to the board that oversees the retirement savings program.

The board reported that the number of service members with Roth accounts jumped from 6,364 in November 2012 to 24,695 in December of that year, an increase of 18,331 participants. The big spike in military members with Roth balances largely is due to timing, said Renee Wilder, director of the Federal Retirement Thrift Investment Board’s Office of Enterprise Planning. Service members could begin enrolling in the Roth option in October, and the first payroll contributions started showing up in November, “We will keep an eye on this,” said Wilder, adding that the board hopes the Roth offering will continue to be a “growth engine” for the TSP.

Service members have an average balance of $553 in their Roth accounts currently, according to the board’s statistics.

Overall, the TSP had $129.6 million in Roth assets as of December 2012, as a result of the retirement option’s increasing popularity among civilian federal employees and service members.

The TSP Roth option, unveiled in May 2012, allows beneficiaries to invest money that already has been taxed and is not taxed again upon withdrawal, unlike traditional TSP savings. With Roth’s addition, participants now can invest pretax or after-tax dollars in any of TSP’s offerings as long as their total contributions are within the IRS limits. The IRS increased the cap on annual individual TSP contributions in 2013 from $17,000 to $17,500. Employees age 50 and older can contribute an additional $5,500 a year in catch-up contributions as long as their regular contributions for 2013 are expected to reach the $17,500 limit.

The Roth offering could become a bigger draw if the TSP decides to allow enrollees to convert their traditional investments to a Roth account. The fiscal cliff law signed earlier this month allows the TSP and other retirement plans to give enrollees the option to switch accounts. Participants would pay taxes on the amount converted to a Roth account.

Gregory Long, the board’s executive director, called the Roth option a “game changer” for the TSP, and said the Defense Department is paying attention to its growing popularity among service members.

During Monday’s monthly board meeting, officials also reported that the I Fund, which invests in international stocks, was the top-performing fund in 2012 – the first time since 2007 it has bested the portfolio’s other offerings. The number of TSP participants invested in only the G Fund rose slightly over the last 12 months, from 46.85 percent in December 2011 to 47.64 percent in December 2012. Overall TSP participation has increased as well, from 4.54 million enrollees in 2011 to 4.61 million enrollees in 2012.

Economic uncertainty and the impending fiscal cliff at the end of 2012 also spooked enrollees, apparently. The board said $3 billion poured into the government securities-based fund in December, the TSP’s most stable offering, as beneficiaries sought shelter for their retirement savings. The same amount moved out of the G Fund this month, after Congress approved a short-term fiscal cliff plan that boosted investors’ confidence -- at least for now.

Earlier this month, Treasury Secretary Timothy Geithner suspended payments to the G Fund as part of the government’s “extraordinary measures” to avoid default on its debts, but will restore the money once the debt ceiling is raised. The House last week approved legislation that extends the current debt limit of $16.4 trillion until May 19, giving the government some more wiggle room.

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