Language added to a bill that has passed the House Oversight and Government Reform Committee (HR-4363) would allow those who separate from government service for retirement or for other reasons to invest in their TSP account the value of the payments for unused annual leave that they are due on separation.

The plan passed with bipartisan support, with sponsors saying that such a practice already is common in the private sector among similar retirement savings programs such as 401(k) plans. The idea has been circulating in Congress for years, but prospects for enactment this year seem better than ever.

The change would be a significant one for the TSP, which otherwise allows investments only through payroll deductions, except for transfers of funds from similar plans of former employers or IRAs into which such funds previously had been transferred.

Under tax law, the combination of payroll withholding investments and annual leave value still would have to be under the annual TSP dollar limit, which in 2012 is $17,000 – those age 50 and older can save an additional $5,500.

However, that restriction might not be a hindrance to many investors, especially those who retire after the turn of the year. That is, they could invest up to the maximum through their last calendar year of work, and then retire early in the new year and put in the TSP much or all of their unused annual leave entitlement, gaining the favorable tax treatment that comes with TSP investing.

The option, if enacted, would apply only to annual leave, and not to other forms of accumulated leave or time off.