FAQ on new Roth TSP

Monday - 4/25/2011, 9:05pm EDT

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This story has been updated from its original content. Originally, a quote was included that stated the TSP board is working on allowing Roth IRA transfers to traditional or Roth TSP. In fact, the Roth TSP will be like a Roth 401(k) and will not accept transfers from Roth IRAs.

By Jolie Lee
Federal News Radio

Hosts Bob Leins and Tammy Flanagan got answers about the new Roth Thrift Savings Plan option from Greg Long, Executive Director of the Federal Retirement Thrift Investment Board.

What is the difference between a Roth TSP and a traditional TSP?
A Roth TSP is funded with after-tax dollars while the traditional TSP is funded with pre-tax dollars. The Roth TSP still allows you to invest in the same funds as the traditional TSP.

"You need to make some decisions about what you want and your expectations of future tax brackets you would be in and what the government would be taxing people 20, 30 years from now," Long said.

When will the Roth TSP be available?
The second calendar quarter of 2012.

Is the contribution limit for the Roth TSP the same as the traditional TSP?
The current contribution limit is $16,500. This limit will remain $16,500 between the Roth and traditional TSP.

Can I transfer between a traditional and Roth TSP?
No, Long said. "The idea of doing a 're-characterization' is not permitted."

What is the fee structure for the Roth TSP?
The fee structure will be calculated and applied the same way as the traditional TSP. "There won't be a different level of fees for somebody who uses Roth opposed to somebody who doesn't," Long said.

Will the Federal Retirement Thrift Investment Board track my Roth and traditional TSP investments?
Yes. Even though the Roth TSP invests in the same funds as the traditional TSP, the board will have separate accounting systems to track the money separately, Long said.

Can I move Roth IRA funds into a traditional or Roth TSP?
The Roth TSP will be like a Roth 401(k) and will not accept transfers from Roth IRAs. "This is a one-way street that only goes the other way," Long said.

What is the mandatory distribution for the Roth TSP
The Roth TSP and a Roth 401(k) operate "virtually identically" with mandatory money withdrawals at 70 1/2, Long said. However, a Roth IRA does not have this distribution requirement. Some people might want to move funds from the Roth TSP to the Roth IRA to bypass that requirement.

Can I borrow against my Roth TSP?
"It's one of the things we're working on," Long said. "Our intention is to set up the Roth account so it can be a source of funds for loans."