Federal employees will get four new features in their Thrift Savings Plan, including a Roth 401(k) option that allows them to contribute after-tax dollars into their savings plan and then withdraw them at retirement tax-free.

Congress’ passage of the bill will bring numerous changes to the Thrift Savings Plan, namely:

• A Roth 401(k) option, which would let participants put some or all of their after-tax salary into an account that will grow without tax liability on future earnings. The Federal Retirement Thrift Investment Board governing TSP said it could have a Roth option ready in one or two years. A Roth option would benefit those whose income tax bracket would be in higher during retirement than during their federal or military careers. Uniformed service members and select groups of federal civilian employees, such as judges, are among those likely to benefit from a Roth option. About 634,000 service members now participate in TSP. Most federal civilian employees, however, would not benefit from a Roth investment option.

• Automatic enrollment of new federal civilian employees. The Federal Retirement Thrift Investment Board said this will encourage more young employees to start saving for their retirement as soon as they begin working for the government and take advantage of matching funds offered by their agencies. Employees would have 90 days to opt out of the program and receive a full refund. The bill leaves to the Defense Department the decision of whether to automatically enroll military service members into TSP. The Defense Department has already told the Federal Retirement Thrift Investment Board it intends to automatically enroll military service members after a Roth option is established. Unlike federal civilian employees, military members receive no matching funds.

• A survivor benefit that would allow spouses of deceased TSP participants to maintain TSP accounts.

• A mutual fund option that would allow participants to direct their TSP funds to private-sector mutual funds. The board would be authorized to select the mutual funds that would be available to plan participants.

Courtesy of FederalTimes.com