Active duty Service members must change Roth TSP contributions
GRAFENWOEHR, Germany (Nov. 18, 2014) -- Active duty members of the Army, Air Force or Navy making dollar-amount Roth contributions to a Thrift Savings Plan account should know that these deductions will stop on Jan. 31, unless action is taken.
"The Roth [Thrift Savings Plan] contributions are going from a dollar figure to a percentage of pay," said Kent Thompson, Financial Readiness Program manager for Army Community Service.
This change will allow Service members to track their contributions to date, said Thompson. By contributing a percentage instead of dollar amount, Service members also avoid Thrift Savings Plan, referred to as TSP, updates as their pay rises.
"This means that they'll get richer faster," said Thompson.
How the election requirements will change:
An upcoming change in myPay will require Service members to designate Roth contributions as a percentage of pay, not a dollar amount. Noncompliance means that Roth contributions will not be processed by the Defense Finance and Accounting Service.
This change affects Roth contributions only; traditional contributions are already designated as a percentage of pay.
When the change will take effect:
The new requirement will take effect Jan. 1, 2015. Service members will have 30 days to change the Roth election from a dollar amount to a percentage of pay. If the new Roth election is not received by Jan. 31, 2015, then the Defense Finance and Accounting Service cannot process Roth contributions until they are updated.
How to make the change:
First, log into myPay. Click on the TSP section titled "Traditional TSP and Roth TSP." Next, in the "Contribution from Roth TSP" section, enter the percentage of pay to contribute (10%, for example). Finally, click "Save" at the bottom of the screen.
The benefit of Roth contributions:
Roth contributions are taxed before the money enters the TSP account, rather than when it is taken out at retirement. Earnings can also be tax-free if the contributor is 59.5 years old, has a permanent disability or five years have passed since the year of the first Roth contribution.
Service members can make Roth contributions from tax-exempt pay, basic pay, incentive pay, special pay and bonus pay. Roth contributions from tax-exempt pay earned in a combat zone, will not be taxed upon contribution and will grow tax-free.