New TSP Roth Feature: January 2012

December 27, 2010
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The Thrift Savings Plan Enhancement Act of 2009, authorized the Thrift Savings Plan (TSP) to add a Roth 401(k) feature to the plan.

This benefit allows participants to contribute on an after-tax basis to their TSP accounts and receive tax-free earnings when they withdraw the funds (assuming certain criteria are met).

Under current options in the TSP, income tax is paid when funds are withdrawn from the TSP since the original contributions were made from pre-tax dollars.

According to the TSP, the target date for the implementation of the TSP Roth feature is January 2012, and this benefit also applies to catch-up contributions for participants age 50 and older.

On Dec. 21, the TSP issued guidance for the program (see link below for full details).

Some of the basics regarding TSP Roth contributions are:

  • At present, the law does not allow conversions of existing TSP regular bal¬¨ances to Roth balances.' If a participant elects to contribute a regular (tax- deferred) contribution to the TSP, he or she may not request that the contribution be changed to a Roth contribution (or vice versa) once the election is properly processed by the agency and the contribution is deposited into his or her TSP account. (The participant can always change his or her election for future contributions.) 
  • Roth contributions are made by the TSP participant on an after-tax basis from basic pay, and may be made in addition to or in lieu of regular contributions.
  • TSP Roth contributions are subject to the current elective deferral limit and must be combined with any regular contributions in determining whether the limit has been met.
  • Participants age 50 and over may elect to make Roth catch-up contributions. All regular catch-up contributions and Roth catch-up contributions are contributed from basic pay and count against the catch-up deferral limit.
  • The TSP participant's agency automatic (1%) and agency matching contributions are always tax-deferred (as are their earnings). There is no differentiation between matching contributions associated with regular contributions and those associated with Roth contributions.
  • Roth contributions are added to regular contributions when determining the percentage of pay being contributed for purposes of the Agency Matching Contribution formula. Thus, the total amount of employee con-tributions (whether regular or Roth) is used for the formula. 
  • A participant may designate any whole percentage or whole dollar amount of basic pay as Roth contributions. This election may be in addition to or in lieu of an election to make regular (tax-deferred) contributions.

To download (60-page PDF) the Thrift Savings Plan (TSP) Roth information and guidance issued 12/21/10, go to: