May 8, 2012
Many federal government agencies began taking requests from employees to switch their future contributions to Roth TSP accounts this week.
Unfortunately, some TSP participants – especially those in defense-related work – have to wait until as late as October to begin Roth TSP. The Defense Finance and Accounting Service announced on April 13 that Defense employees would have to wait until October in some cases to switch their personal contributions to the Roth TSP. The DFAS announcement came a day after TSP administrators officially announced May 7.
According to DFAS, service members in the Marine Corps will be able to contribute to Roth TSP accounts beginning in June, DoD civilian employees will be able to contribute as of July, and service members in the Army, Navy, and Air Force will be able to contribute in October.
TSP administrators also updated the various forms to reflect the new Roth TSP option, including taking the “Advance” off of the TSP-1 and TSP-1-C Election Forms.
If you are thinking of switching your contributions to the Roth TSP option, one strategy to consider is to reduce the amount you contribute by a percentage point or two at the same time. Because contributions to the Roth TSP are drawn from taxable income — unlike contributions to a regular TSP account, which are tax-deferred and reduce your taxable income — those who contribute to the Roth TSP will pay more in federal and possibly state taxes, as well as FICA (Social Security) and Medicare withholding. Thus contributors to the Roth TSP will see their paychecks reduced a little more than what they are used to with regular TSP contributions.
For example, those who contribute 12% of their salaries might want to reduce that to 10% initially, and those contributing 8% might want to reduce that to 6%, until you get a feel for your new income levels with the Roth TSP contributions. Then, once you are comfortable with those contribution levels, you can slowly adjust it back to the original contribution amount.