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tax free when withdrawn.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.