The Roth TSP began four years ago in 2012. Even though it has been around four years I have found very few people that are taking advantage of it. The reason a lot of people aren’t contributing seems to be a big misunderstanding. Here are two myths that I have found a lot of people believe about Roth TSP.
1. I won’t receive any matching
2. Roth TSP has different investments
Each of the statements above is false. If an employee contributes to Roth TSP he will still receive the government matching. The government will still match contributions up to 5% but the contributions go into Traditional TSP instead of the Roth portion.
Truth – Employees contributing to Roth TSP still receive their matching, however, the matching portion goes into Traditional TSP instead of Roth. Employees contributing to Roth TSP will always have two components to their TSP – Roth and Traditional.
The second myth or misconception that I have heard a number of times is that the investments are different in Roth TSP. The investments in Roth TSP are the exact same as those in Traditional TSP. The difference between the two comes in the way taxes are paid on each of the accounts.
Truth – Employees have access to the exact same investments in Roth TSP as they do in Traditional TSP. The only difference is how taxes are paid now and in the future.
Bottom Line – FERS employees still receive matching on Roth TSP contributions and the investments are the exact same as they are in Traditional TSP. The Roth TSP is not a big scary animal. If you think you are better off paying taxes today in return for tax free money in the future then the Roth TSP may be a very good fit for you. Switching to Roth TSP will take you a whopping five minutes to go into your TSP website and change your contributions to the Roth portion.
Brad Bobb, CFP® is the owner of Bobb Financial Inc, and an expert in retirement planning for federal employees.