Thrift Savings Plan Training and Liaison Specialist, Paula Gradwell, led an active discussion of the plan’s benefits during our web conference on the topic held Wednesday, July 25. To view resources from this session, as well as to view the recording, click here.
Due to the volume of questions from participants, we were unable to answer them all during the 90-minute session. Below, Ms. Gradwell addresses the questions that were not answered during the session.
Q. Is there a reason why Soldiers are being told they have to withdraw their funds from TSP? A LTC told me he was told by a TSP Rep that he had to! I know he has more than $200 in the plan.
A. To my knowledge no TSP representative has told anyone they must withdraw their TSP funds when they separate from active service if they have more than $200.00 in their account. I have heard the same thing, and upon further conversation with the individual reporting the event, I find that TSP is NOT the source of this invalid information. It is not required to withdraw TSP funds upon separating from the service if the TSP account has a balance of at least $200.00. If you encounter instances when a TSP representative advises counter to the information in this blog, please leave your contact information in the comment section. You will be contacted for further conversation.
Q. With all the limits are the Roth TSP limits equivalent to the Roth Employer plans? Therefore a service member could save 22,000 in ”Roth” dollars between a Roth IRA and the Roth TSP?
A. Once again, I cannot address the Roth IRA limit, because it comes with limits set by the Internal Revenue Code. For the Roth TSP, as an employer plan, all who are eligible to contribute to the TSP may contribute up to the elective deferral limit of $17,000 for 2012. This includes all contributions of tax-deferred, tax-exempt and Roth combined contributions (not each).
Q. Is this a one-time only decision? What if they wait until next year to open a Roth TSP?
A. Roth contribution decisions can be made and changed each pay period. There is no set time to begin, and it can be any year in the future. Many are checking with their tax experts (and that may not be until tax filing time in the spring) to see if this fits their personal tax situation. Any active duty participant eligible to contribute to the TSP can choose at any time (through myPay) to start, stop or change their contributions to be all traditional, all Roth or some combination of each. Keep in mind, the Roth TSP option is not yet available through payroll deduction for Army, Navy, and Air Force.
Q. Where I see the real benefit to Roth TSP is during deployment so that the tax-free money earned & placed into TSP, the earnings on that money will also come out tax free.
A. When eligible to withdraw the Roth TSP contributions will be tax free. The earnings must meet TWO Internal Revenue contributions to also be tax free: the individual must meet at at least one of the criteria of being at least aged 59½, or disabled or deceased. In addition, the account holder must have had the account for at least 5-years in order to take a tax-free withdrawal. These rules apply whether or not the contributions were made in a designated CTZE.
Q. Since a Roth employer plan can be rolled over into a Roth IRA, then at that time would it then not be subject to RMDs?
A. When eligible to withdraw and NOT in an RMD year, then Roth TSP contributions will be eligible to transfer into a Roth IRA. Special rules apply for the RMD year portion that needs to be disbursed. Professional guidance at that point may be warranted. The TSP also has a special tax notice at www.tsp.gov that specifically addresses RMDs. Key “required minimum distribution” into the search box on the tsp.gov website for fact sheets on this subject.
Q. If TSP Roth funds by election get rolled into a standard Roth IRA then it is now subject to the Roth IRA rules (w/no RMD) and in effect will never have a RMD??
A. Please see TSP-775 (5/2012 is the current version as of this writing) that notes “your entire TSP account is subject to the required minimum distributions.” As noted on the above question: If participant is in an RMD year, then there is specific Internal Revenue guidance that the TSP is required to meet. Strongly suggest if a participant is at that point, then he/she should check Internal Revenue guidance at that time and seek professional guidance. Visit www.tsp.gov and key “required minimum distributions” into the search box for the TSP fact sheet referenced here.
Q. Elementary question I’m sure: can retirees participate in TSP
A. As with any defined contribution plan (i.e. 401(k)), including TSP, participant may only contribute if they are in a basic pay status. Retirees by definition are NOT in a pay status, even though they may be drawing some type of pay (annuity/pension, etc.) If retiree has a TSP account of at least $200.00, it may remain in the TSP. See next question and answer also.
Q. Just want to verify– once someone separates, they cannot continue to make contributions BUT they can leave their money in the TSP account and it can continue to grow?
A. See question above for non-contribution rules after leaving active pay status. Yes, the account may stay with the TSP, and the participant may continue to do interfund transfers (move their balance among the available funds), earn positive or negative returns (depending upon where they choose to have their money invested among the funds). Mandatory withdrawals must only BEGIN to when the participant meets the TWO requirements of: April 1st after they turn 70½ AND are separated from federal service.
Q. Wish the entire DCO would have been strictly on Roth TSP, felt very rushed going over the Roth, which is the newer item of discussion. Thanks for the briefing and information.
A. Since the PFM area has new folks coming in on a regular basis, the basic TSP seems helpful as a review. Many participants are still not comfortable about how to contribute (myPay) or what options are available to those who are active and what options are available upon separation from federal service.
Q. Contributions to TSP – only basic pay, so can’t use bonus money or deployment entitlements or rollover from 401?
A. Uniformed services participants may contribute from basic, special, bonus and incentive pays. If member has previous 401(k) (or equivalent recognized by the Internal Revenue) then that type of plan is generally eligible to be transferred directly into the TSP.
Q. How does one make sure that Tax Exempt pay in combat zone is distributed to top-off $17,000 contribution limit on the Roth account with remainder of pay being directed toward the $33,000 Traditional account limit?
A. Each member will have to monitor this when the Roth option becomes available. This must be done via myPay.
Q. How will Roth contributions be invested? Will an individual get to choose?
A. The Roth TSP option is not an investment decision, it is a tax decision. All Roth after-tax contributions still go into the same TSP account you currently have. How you have chosen to invest proportionally among the ten available funds, is the same for the Roth. If you do a contribution allocation change (future contributions) or an interfund transfer (current account balance), whether you have traditional (tax-deferred/tax-exempt) and/or Roth (after-tax) monies in your account, each will be proportional in the funds in which you choose to invest. See IRS publication 590 for a discussion of Individual Retirement Arrangements, available at www.irs.gov.
Q. Describe the glide path for the Lifecycle (L) fund. How much is in stock at the target date?
A. The glide path, at the beginning, for each of these L funds is different. The one out to 2050 has a much larger amount among the three equity funds (C, S, and I). Please check the glide paths for all on our home page www.tsp.gov , for the individual L funds and the percentage in each of the funds in which they are currently invested. The end of each of the funds’ glide paths is when it reaches the time-targeted year. Therefore, when the Lifecyle Fund, 2020, reaches its target date, it will be 74% G, 6% F, 12% C, 3% S, 5% I funds.
Q. Can you roll over savings deposit program (SDP) monies into a TSP Roth?
A. If this is the uniformed services (DoD) savings deposit program, this is not able to be transferred/rolled into the TSP. If you are referring to the special savings program for federal civilians in the CSRS retirement system, the answer is also not able to be transferred/rolled into the TSP. If you are referring to something else, then Internal Revenue Service (www.irs.gov) guidance would be where to look.
Q. Can you change from a traditional to a Roth IRA – transfer money to a Roth?
A. Roth IRAs are a private investment that is not a part of the Roth TSP option. Outside professional advice should be sought.
Online TSP Resources:
TSP Comparison Matrix
TSP Fund Information Sheets
eXtension resources on tax deferred plans
TSP forms and regulations
Thrift Savings Plan Q&A by Molly Herndon is licensed under a Creative Commons Attribution 3.0 Unported License.
Based on a work at http://blogs.extension.org/militaryfamilies/2012/08/10/thrift-savings-plan-qa/.