Thread: TSP to ROTH TSP

This was posted this morning on our parent agency's web page:

Roth TSP Allows Flexibility In Taxes Now And Later
By Sharon Dobson
Posted: May 8, 2012

On May 7, the Thrift Savings Plan (TSP) gave Federal employees the option to treat some or all of their TSP contributions as Roth contributions. Participants now have flexibility in the tax treatment of their contributions today and in the future.

In a traditional TSP, employee contributions are considered pre-tax income, which lowers the amount of your current taxable income and gives you a tax break today. TSP contributions and earnings are tax-deferred while growing in your account, but when you withdraw your money, you pay taxes on both the contributions and their earnings.

In contrast, Roth contributions are taken out of your paycheck after your income is taxed. However, when you withdraw funds from your Roth balance, you will receive your Roth contributions tax-free since you have already paid taxes on the contributions. You also won’t pay taxes on any earnings, as long as you’re at least age 59½ (or disabled) and your withdrawal is made at least 5 years after the beginning of the year in which you made your first Roth contribution. Upon your death, no part of the Roth IRA will be subject to income tax to your beneficiaries, though the Roth IRA will be subject to estate taxes.

Employee Express will begin accepting Roth contribution elections on May 20 effective on June 3. A TSP representative will answer questions at the 2012 DOT Health and Fitness Expo on May 16th from 11 a.m. to 2 p.m. in the DOT HQ West Atrium.

When making TSP elections, keep in mind that the combined total of your Roth and tax-deferred traditional contributions in 2012 cannot exceed the elective deferral limit of $17,000, or if you are age 50 or older the catch-up contribution limit of $5,500. In addition any agency contributions you receive will always be treated as a part of your traditional (non-Roth) balance. Employees may want to consult a qualified tax or financial advisor to help decide if Roth is the right choice for them.

A few facts about the Roth TSP:

• There are only two ways to put Roth money into your account: (1) From you future pay; and/or (2) Transfer Roth money into your account directly from eligible plans (Roth 401(k)s, Roth 403(b)s, or Roth 457(b)s only).
• You cannot transfer money into the TSP from Roth IRAs.
• You cannot convert money that is already in your TSP account into Roth money.
• You cannot convert any agency traditional contributions into Roth contributions.
• Agency automatic and matching contributions will always be traditional, tax-deferred contributions, even if your own contributions are only Roth.

All employee contributions, whether traditional or Roth, are added together to determine if the elective deferral maximum amount has been reached. The maximum contribution is the sum of the elective deferral and catch-up contribution limits.

A TSP participant may contribute:

• Up to $17,000.00 in combined traditional and Roth contributions.
• If age 50 or older, up to $5,500.00 in combined traditional and Roth catch-up contributions.
• For a combined total of up to $22,500.00. TSP-eligible participants age 50 or over may elect Roth catch-up contributions.

Please refer to the information displayed in the chart below.

	Roth IRA	Roth TSP
Income Limits	Not available to taxpayers with income above certain limits: Married Filing Jointly - $173,000 to $183,000 Married Filing Single - $0 to $10,000 All others – 110,000 to 125,000	Available to all participants regardless of income
Contribution limits	$5,000 ($6,000 if at least 50 years of age)*	$17,000 (plus an additional $5,500 if at least 50 years of age)*
Required Minimum Distributions (RMD)	Not subject to RMDs until the IRA owner dies	RMDs apply to both Roth and traditional balance (April 1st after you turn 70 ½)
Rollover rules	May NOT be rolled into a Roth 401(k); a Roth can only be rolled into another Roth IRA	Can be rolled into another Roth 401(k) or a Roth IRA

*2012 limit

The Leave and Earnings Statement will list the basic information as to the distribution elected (Roth amount contributed or percent elected). The deductions will display both Roth and Roth Catch-Up as separate line items.
If you have additional questions regarding the Roth TSP plan, please contact TSP directly at 1-877-968-3778 and hit prompt “3” to speak with a representative.

Visit the TSP website to view a short video about the Roth TSP, or check out the April 2012 Thrift Savings Plan Highlights bulletin for more information.
TSP is one of three components of the Federal Employees Retirement System (FERS). The others the FERS annuity and Social Security. Together, the three components are designed to closely resemble the dynamics of private sector 401(k) plans. TSP Roth is also open to Federal employees covered under the older Civil Service Retirement System (CSRS).