A Roth IRA and a traditional thrift savings plan (TSP) are two retirement tools used by government employees. The TSP board is planning to launch a TSP Roth in 2012 to provide more retirement options to its enrollees. A TSP Roth will be different from a Roth IRA in that it will allow for greater funding, but it will have more restrictions on investment options and access to funds.
Annual Investment Limits
As retirement accounts, the Roth IRA and the TSP Roth have annual investment limits. The TSP Roth has a significantly higher investment limit than the Roth IRA. Investors will be able to put $16,500 in a TSP Roth, whereas a maximum of $5,000 can be put into a Roth IRA in 2011. A TSP Roth has a higher catch-up provision as well. Employees age 50 and older can put an additional $5,500 catch-up investment each year into a TSP Roth. The catch-up addition for a regular Roth IRA is only $1,000 per year in 2011.
Investing into a TSP Roth has the added advantage of employer contributions. In a regular TSP, an employer had the option of adding funds that match the amount the employee puts into his TSP account. An employer will continue putting this match in an employee's regular TSP account regardless of whether the employee continues using the regular TSP or switches to a Roth TSP. A regular Roth IRA has no method for employer contributions.
Who Can Use Each Plan
The TSP Roth will only be available to certain members of the government. The plan is designed to benefit mainly members of the military. The TSP Roth also will be available to certain groups of highly paid federal employees, such as judges. The governing board of the TSP Roth will not open this account to lower compensated federal employees. Roth IRAs are more accessible and can be used by anyone with an adjusted gross income of less than $122,000 for single taxpayers and an income of less than $179,000 for married taxpayers, based on 2011 rules.
Plan Investment and Access Restrictions
A TSP Roth has greater restrictions on investment choices and access to funds. The investment options of a TSP Roth are determined by the organization setting up the plan. Employees can only invest in the options the employer offers. A Roth IRA can be invested wherever the investor chooses. The TSP Roth can also be more restrictive on early withdrawals. Each organization determines the rules for early withdrawals from a TSP and can restrict a current employee from accessing his account. There are fewer restrictions for Roth IRA withdrawals, and contributions to a Roth IRA can be withdrawn anytime with no penalty.
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