Roth TSP: 7 May, but later for military
You’re probably as tired as I am of these blow-by-blow breathless updates on the Roth TSP. At least the military’s Defense Finance and Accounting Service is doing a better job of coordinating their announcements with the federal Thrift Savings Plan.
The board of governors of the TSP has announced that the Roth version of the TSP will go live on 7 May. They mentioned that some services have not yet finished programming their pay systems to handle Roth TSP deductions, so those services will implement the Roth TSP as soon as they’re ready.
Unfortunately those laggard military services are… all of them. The Defense Finance and Accounting Service announced last week that their computer systems still need more testing before they’re ready for the Roth TSP. DFAS expects to have the Roth TSP ready for DoD civilians and the Marine Corps by this summer. According to the DFAS website, the Army, Navy and Air Force will join in by October 2012. However, one commenter has heard an ugly rumor that the Army Roth TSP won’t even be ready until 2014.
If you’ve heard any official announcements (or even good rumors!) from your service, whether they’re ready or not, then please post a link in the comments below. I’ll track down the scuttlebutt.
Here’s a quick review of the Roth TSP. It has the same $17,000/year contribution limit as the regular Thrift Savings Plan, with the same additional contribution limits for those over 50 years of age or on duty in combat zones (but see the next paragraph). Contributions can be split in any ratio between the Roth TSP and the TSP as long as those total limits aren’t exceeded. Younger servicemembers (and junior servicemembers) will generally enjoy a bigger long-term tax benefit by contributing to the Roth TSP now. You’ll pay taxes on the contributions now, but you’ll be able to withdraw them tax-free later in life. (Even if you’re financially independent, your tax rates may be higher.) There are some elements of risk to this strategy, however, so you may want to split your contributions to both the Roth TSP and the “classic” TSP. More details of that discussion are at this post on whether the Roth TSP is right for you.
A number of restrictions apply to contributions from combat zones and for those over age 50. Review those restrictions at The Military Wallet’s excellent summary on TSP contributions and then check the latest rules with your service’s pay office.
If there’s any good news about this update, it’s that the smaller branches of the federal government are going to be the guinea pigs for testing the computer systems that will handle contributions to the Roth TSP. Hopefully DoD will learn from their free experience and will iron out the glitches by the time they take their systems live.
I’ll continue to Tweet about the Roth TSP as more information is available, and my tweets also go out through “The Military Guide” Facebook page. Sign up to follow @TheMilitaryGuid (no “e” in that Twitter handle) or subscribe to the Facebook page.
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