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July 13, 2012

Armywide News

Thrift Savings Plan Roth option available to civilian employees

Federal civilian employees in the Fort McCoy area now have a new Thrift Savings Plan (TSP) contribution option, the so-called Roth TSP.

Defense Finance and Accounting Service spokesman Thomas LaRock said that after a request is processed, employees normally can expect to see the change take effect in their next paycheck, unless it was submitted within a couple days of payday, in which case it would be the following paycheck.

As a new choice for retirement investment planning, the Roth TSP will give civilian employees and military servicemembers the option to contribute after-tax wages into TSP for the first time. Both the contributions and the earnings will be tax free when withdrawn, as long as Internal Revenue Service requirements are met. In the TSP’s traditional design, investments are made with pre-tax money that is taxable along with its earnings on withdrawal. Participants may make either or both types of investments, within total annual dollar limits.

Lisa McLain-Sharp, the new Fort McCoy Financial Readiness Program manager, said she offers many types of assistance to authorized personnel in the Fort McCoy community related to the TSP. McLain-Sharp said although she cannot offer specific advice, she can explain the various funds in great detail to help empower people to make their own, informed choices.

“In addition to explaining Roth versus Traditional TSP options and TSP versus individual retirement accounts (IRA), I can explain asset allocation in relation to risk, age and length of time left to retirement,” McLain-Sharp said. “The simplest explanation is that I can do anything a fee-based planner does but sell my client something. I can help people make informed decisions about any and all financial matters.” Authorized clientele do not pay fees for her services.

McLain-Sharp is an Accredited Financial Counselor and Member of the Association for Financial Counseling, Planning and Education. In addition, she holds a masters’ of business administration from Grand Valley State University and a Bachelor of Science in Finance from the University of Wisconsin-La Crosse.

Prior to coming to Fort. McCoy, she served as the Financial Readiness Advisor for the Soldier Family Assistance Center at Joint Base Lewis-McChord in Washington.

Anyone who decides the Roth TSP is a good choice for their retirement strategies can sign up for it the same way a person would enroll in the traditional TSP, she said. First go to the myPay website (https://mypay.dfas.mil/mypay.aspx) for military and through EBIS (www.abc.army.mil) for federal civilian employees.

Employees cannot convert traditional TSP balances to Roth or vice versa, McLain-Sharp said. Contribution limits are $17,000 per year for employees younger than 50. The $17,000 limit applies to the combined amount in both the TSP and Roth TSP accounts.

Employees older than 50 may make “catch up” contributions up to an additional $5,500 per year or a combined $22,500 into both accounts. Employees and servicemembers may have both Traditional and Roth TSP accounts if they choose. To make all future contributions to a Roth TSP, employees would have to stop all traditional contributions and start Roth contributions in a desired amount.

The basic advantage for most people of the Roth option, whether it is for TSP or IRA purposes, is that distributions are not taxed. Contributions are made from after-tax dollars and cannot be taxed twice.

Therefore, for employees who expect to be in a higher tax bracket when they begin withdrawing distributions from their account, which likely applies to most people, McLain-Sharp said, the Roth is a better option. This is the opposite of Traditional TSP and IRA contributions, which are made with pretax dollars, which lower tax obligations now but increase them later.

For more information in the Fort McCoy community, call McLain-Sharp at 608-388-6812.

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