Ready, Set, Roth

It might be a few more months until the Thrift Savings Plan launches its new Roth option, but it's not too early for federal employees to consider the pros and cons of adding this account to their investment portfolios.

The Federal Retirement Thrift Investment Board, which oversees the TSP, on Monday said it wasn't prepared to approve a fiscal 2011 budget, in part due to concerns about the cost of rolling out Roth accounts, which allow participants to invest income that already has been taxed and therefore would not be taxed upon withdrawal. Congress in 2009 passed legislation requiring the TSP to introduce a Roth option.

Director Greg Long told board members during the meeting that TSP will begin offering Roth accounts in the first quarter of 2012. The rollout, which will cost nearly $13 million, will be a "game-changer," particularly for military personnel who don't contribute to the TSP, he said.

Tom Trabucco, TSP's director of external affairs, said the potential value of the Roth option for young service members is noteworthy because the tax breaks they receive when contributing to standard TSP accounts are not significant.

The Roth option certainly benefits young employees, who generally are in a lower income tax bracket than their more experienced colleagues and therefore have a smaller deduction when contributing to a standard TSP account, said Ashby Daniels, financial adviser at First Command Financial Services. In addition, young workers usually have more time to contribute and watch the account grow tax-free, he said.

But Roth accounts can benefit all federal employees, young and old, according to Daniels. For example, workers should consider tax diversification in their investments, which creates different pools of money rather than limiting retirees to standard taxable TSP accounts. In addition, Roth account holders aren't required to distribute savings at a particular age, while tax-deferred account distributions must begin at age 70.

Daniels cautioned that employees first should consider their own financial plan; those who fall in a lower tax bracket after retirement, for example, might not see great benefit from a Roth account. Employees should find a knowledgeable and trustworthy adviser to guide them through the investment process, he said.

"Above and beyond anything else, just invest as much as you can," Daniels said. "I don't think the type of investment is nearly as important as the fact that you are investing. Pick a course and stay the course."

Socially Responsible Retirement

TSP participants soon might have the opportunity to diversify their portfolios in another way: by adding socially responsible and sustainable investments.

Lawmakers on Wednesday introduced the Federal Employees Responsible Investment Act, which would require the TSP to offer a corporate responsibility index investment option for federal participants. The index would include companies that focus on community involvement, environmental sustainability, human rights and positive workplace relations. Rep. Jim Langevin, D-R.I., the bill's original sponsor, has introduced similar legislation in the past.

"Investing in companies that are committed to corporate responsibility and sustainability will have a positive impact on our financial system, as well as empower federal employees to reward companies that share their values," Langevin said.