Monday, April 17, 2006

The idea of a Roth IRA — whereby all the money you earn while it is invested is tax-free when you withdraw it — holds a lot of appeal for a lot of people.

With a Roth, you pay taxes one time, upfront when you invest the money, and never again, no matter how big your investment bundle gets.

So the logical question for federal and military investors is: Is there a Roth IRA in your future?

The answer is not so logical, at least not to a lot of people. The answer is no, not if you work for Uncle Sam, at least not through the Thrift Savings Plan, which is the government’s in-house 401(k) plan.

Although Congress authorized most employers to offer a Roth option to their 401(k) plan this year, many, perhaps most, have said, “No, thanks.”

Reason: Adding the option whereby employees could put after-tax money (a Roth IRA) and before-tax contributions (a regular 401(k) account) into the same plan would be a major administrative nightmare. It would require the employer to set up, fund and track two accounts within each participant’s portfolio.

Many private companies have said they simply can’t spend the time or money to track the two options within their 401(k) plan.

Uncle Sam has another, and even better, reason for not offering the Roth IRA option as part of the TSP. Congress didn’t, hasn’t and probably won’t allow it.

When Congress authorized the Roth option for most 401(k) plans (from 2006 until 2011), it intentionally left out the TSP. That means that unless Congress changes the rules, the Roth option won’t be available through the federal 401(k) plan.

The Federal Retirement Thrift Investment Board, which runs the TSP, isn’t seeking authority to offer the Roth option.

Why not? Because costs for operating the TSP (which are the lowest in the nation) are borne by plan participants. In a March memo, the board said it is required, by law, to offer services to participants at the lowest possible costs.

Making the Roth option available would raise those costs, so it isn’t in the cards unless and until key members of Congress, or influential staffers (who also participate in the TSP), decide they are missing out on a great investment opportunity.

Entry bonus

As Defense Department civilians are shifted into the new pay-for-performance system, it expects that at least eight of every 10 workers will get one-time pay increases of 1 percent to 3 percent. The money represents the pro-rated amount of time they’ve banked (based on length of service in their GS pay grade) toward the next — and last — within-grade raise (WIG), which is based on performance ratings.

As promised when they first announced the pay-for-performance concept, the Defense Department will give its employees the pro-rated share of their next WIG once their group (called a “spiral”) comes under the new system. For 11,000 Defense Department civilians — many in the Washington area — the target date for the changeover, and the one-shot last-of-the-WIGs raise, is April 30.

Others will be added to the system later this year, unless the courts block them.

Employees at the Homeland Security Department are waiting for the details of their pay-for-performance plan. Federal unions are fighting both plans.

• Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or

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