House committee OK’s Roth option for TSP

[Boxkicker]

The House Oversight and Government Reform Committee approved legislation Wednesday that would create a Roth option for the TSP, which experts say would be a boon to service members who participate in the program.

Under a Roth option, participants would pay taxes when they make contributions to their TSP retirement investment accounts. When they retire and withdraw those funds, they would not be taxed. That differs from the current tax-deferred TSP plan, where contributions are taxed at the time of withdrawal.

The Federal Retirement Thrift Investment Board, which oversees the TSP program, said service members are most likely to benefit from a Roth option, since their current tax rates are likely to be lower than future tax rates. Civilian employees usually will pay lower taxes in the future, which the board says makes a Roth option less beneficial for them.

The legislation also would automatically enroll new federal civilian employees — but not new service members — in the Thrift Savings Plan.
Title IV of HR 1256, the Family Smoking Prevention and Tobacco Control Act, originally would have automatically enrolled new service members in TSP. But an amendment attached to the bill by Rep. Darrell Issa, R-Calif., would leave it to the Pentagon to decide if troops should be automatically enrolled.

Issa said it might not be fair to include service members since the Defense Department does not match their TSP contributions. Civilians under the Federal Employees Retirement System receive matching contributions from their agencies.

The bill would automatically enroll new civilian employees in the government securities-backed G Fund, which does not decline in value and is widely viewed as the safest TSP fund. The bill recommends automatically enrolled employees invest 3 percent of their paychecks in TSP, though it allows the board that oversees the program to set the default percentage anywhere between 2 percent and 5 percent.

Another approved Issa amendment would require the Pentagon to study how much matching service members’ TSP contributions would cost and whether it would help recruitment and retention. Issa said the time has come to give service members matching TSP contributions, though it could cost billions of dollars.

“Our men and women in uniform are treated disproportionately and poorly when it comes to TSP,” Issa said.

Rep. Edolphus Towns, D-N.Y., the committee chairman, agreed.

“We should provide top-notch retirement benefits to our uniformed military personnel,” Towns said.

[donheff]

I like opt out on savings. I wish I had been auto enrolled in some sort of investment program 40 years ago. It is particularly valuable for twenty somethings -- many (most?) of them don't realize the implications of compound interest. Many people spend their entire income - I did until I was about 32. If they start out not saving, they will quickly conclude that they can't afford to save. If the default employment contract includes auto savings, many of these same people will be too lazy/inattentive to fill out the paperwork to drop out. So they will keep saving. It is paternalistic, yes. But it doesn't harm anyone and it helps a significant number of slackers (like me) who wouldn't figure it out on their own.

As for the military, I don't see any reason why an opt out program wouldn't be as useful for them as for civilians. If their benefits suck, raise them.

[FUEGO]

I like the auto-enrollment/opt out programs too. It makes perfect sense if you think of the 401k as the replacement for the traditional pension. You automatically put 6-9% of your pay into the 401k (unless you opt out) plus the company match of 4-6%. 40 years of that and you'll be set. Maybe.

[Boxkicker]

I wouldn't say the benefits for the military suck that bad. I retired in Dec 2008 as an E-7. My retirement is $1880/mo. My medical is $230/yr with $12 co-pays if I don't get seen in a MTF. My dental is $31/mo.

I recommended all my Sailors that I ran across to put some in the TSP. It is a nice thing to have in addition to a military pension when you get over 59 1/2. A Roth option would be nice for those still serving!

[ziggy29]

Quote:

Originally Posted by Boxkicker I wouldn't say the benefits for the military suck that bad.

I'd say. How many other people can collect pension checks before their 40th birthday?

[Boxkicker]

Oh, forgot to add..It's COLA'd

[ziggy29]

Quote:

Originally Posted by Boxkicker Oh, forgot to add..It's COLA'd

OW! What's that?

Oh, it's the salt being rubbed into my wounds.

[Notmuchlonger]

Quote:

Originally Posted by ziggy29 I'd say. How many other people can collect pension checks before their 40th birthday?

Guess you got to give them something for risking their lives

[ziggy29]

Quote:

Originally Posted by Notmuchlonger Guess you got to give them something for risking their lives

No problem with that. Just saying it's pretty hard for someone to argue that they have lousy benefits when they have that waiting on the other side.

[OAG]

I have a few old friends now residing in Arlington, VA that may disagree with some of these comments. I am not sure tho as they are not speaking too much. Besides, would not the money going into the "new ROTH option" be their own money?

[ziggy29]

Quote:

Originally Posted by OAG I have a few old friends now residing in Arlington, VA that may disagree with some of these comments. I am not sure tho as they are not speaking too much. Besides, would not the money going into the "new ROTH option" be their own money?

Seems like they should have the Roth option like everyone else. That means they too could be screwed when the government switches to a national sales tax take everything out tax-free in the future and avoid RMDs.

[DoubleDown]

Any idea if I can roll over my current balance into the proposed new Roth TSP (and pay the taxes)? I haven't seen that question asked yet.

[Bimmerbill]

I'm excited about this. I hope it gets implemented. I have a Roth thru Vanguard, but only putting in $50 a month. I think it will be much easier to just do it thru the TSP.

Yeah, I know its all my money and I could just set up a seperate allotment with auto deposit thru my paycheck. Just can't seem to get around to it...

[FUEGO]

Quote:

Originally Posted by Bimmerbill Yeah, I know its all my money and I could just set up a seperate allotment with auto deposit thru my paycheck. Just can't seem to get around to it...

It's relatively easy w/ vanguard. Except I think it is $100 per transaction minimum, so you'd have to do bi-monthlies to put in $50/month.

I do the auto-purchase at vanguard and it is just another bill now to me. Easy. And it forces me to invest.

[harley]

Quote:

Originally Posted by ziggy29 Seems like they should have the Roth option like everyone else. That means they too could be screwed when the government switches to a national sales tax take everything out tax-free in the future and avoid RMDs.

The government won't be switching to a national sales tax.

They'll be adding one.