New Investment Options Proposed for Thrift Savings Plan
May 20, 2008
Lawmakers who oversee the Thrift Savings Plan (TSP) have
proposed adding new investment options, including a Roth IRA that
would permit tax-free withdrawals of a federal employee's retirement
savings.
"We regard the TSP as the premier retirement savings program in the nation.
But we also recognize that the law creating the TSP was enacted over 20 years
ago and has been only infrequently updated," said three members of the House
Committee on Oversight and Government Reform in a May 16 letter to the
Federal Federal Retirement Thrift Investment Board. "The provisions in the
discussion draft reflect ideas for modernizing and strengthening the TSP that we
believe merit additional consideration."
The proposed legislation would direct the board to:
- automatically enroll newly hired federal employees in the TSP
- make the life-cycle funds (L Fund) the default option for employees who do
not select a fund
- make a Roth IRA option available to participants
- add an additional low-cost index funds or self-directed investment options
to the TSP, if the board determined that this would be in the interests of plan
participants
Federal employees who anticipate their income will rise over time,
thus placing them in a higher tax bracket, may find the proposed Roth IRA option
particularly beneficial. While a Roth IRA provides no tax deduction for
contributions, if an enrollee meets certain requirements, all earnings are
tax free when withdrawn. Other potential benefits of a
Roth IRA include avoiding the early distribution penalty on certain withdrawals,
and eliminating the need to take minimum distributions after age 70½.
At its monthly planning meeting yesterday, the Board stated it would be
reviewing and researching the viability of the Roth IRA and other new TSP fund
options over the next several months.
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