Thrift Savings Plan Roth option is official

Federal employees are eligible to enroll in the Thrift Savings Plan’s Roth 401(k) offering Monday, marking the first time a Roth-style investment option has been available to them.

TSP’s Roth offering allows participants to invest money that already has been taxed so it cannot be taxed again upon withdrawal. The option will be similar to those in the private sector, but unlike a traditional Roth IRA, there will be no income limits.

Employees now can invest pretax or after-tax dollars in any of TSP’s funds as long as their total annual contributions are within Internal Revenue Service limits. The IRS increased the cap on individual retirement contributions in 2012 to $17,000 from $16,500, due to a change in the cost-of-living index. Employees 50 and older can contribute an additional $5,500.

Although Monday is the official launch date for the Roth option, as a practical matter it will not be available to many employees until at least the end of the year. The Federal Retirement Thrift Investment Board has acknowledged that payroll systems at many agencies are unprepared to begin enrolling employees.

The Washington Post has reported that up to three-fifths of federal works will face delays.

The Defense Finance and Accounting Service, for example, won’t be ready to offer the option on time. It will be available to civilian and Defense Department employees and service members this summer or early fall, and TSP has said military service members are among those most likely to benefit from the Roth option. DFAS’ payroll systems serve 1.2 million of the 2.1 million executive branch federal employees, not counting postal employees, according to the Post. DFAS spokesman Tom LaRock has told Government Executive that the service’s more complicated payroll systems caused the delay.

For young service members who might receive an annual allowance of $20,000 to $25,000, the Roth option would ensure they are taxed on those earnings rather than their presumably higher income when they reach retirement age.

The Veterans Affairs Department will be ready to offer the Roth option to its civilians in July, and the Army, Navy and Air Force will offer it to service members by October.