33% of private sector workers have no retirement savings other than Social Security and what they can set aside in an IRA. Image: eamesBot/Shutterstock.com
By: John GrobeNo one has ever accused the TSP of being an early adopter of change. Here are a few examples of how the TSP has lagged.
The 401(k) plan was created in November of 1978, but the Thrift Savings Plan did not appear until 1987. The Individual Retirement Arrangement (IRA), after which 401(k)’s were patterned came on the scene back in 1974.
Roth 401(k)s were made available in January of 2006, but the Roth TSP wasn’t introduced until the summer of 2012 (actual dates depended on each agency’s payroll system). Roth IRAs date back to 1997.
But the Thrift Savings Plan is not bringing up the rear when it comes to implementing retirement savings vehicles. Consider these facts.
Two-thirds (67%) of private sector employers offer 401(k) plans. That means that 33% of private sector workers have no retirement savings other than Social Security and what they can set aside in an IRA.
Of employers who offer 401(k)s, 20% of them do not offer a Roth option.
Did you know how the Roth IRA got its name? Senator William Roth (R, DEL) was its indefatigable sponsor, working for 8 years to get this new type of IRA introduced.
He initially co-sponsored the legislation with Senator Robert Packwood (R, OR), but Packwood resigned from the Senate under threat of expulsion in 1995, two years before the creation of the Roth IRA. Congress so admired Roth’s determination in pursuing this new retirement savings tool that they named the new IRA after him.
The whole concept of a Roth is to allow future retirees to invest after-tax money in order to get tax-free distributions when retired.
In order for Roth distributions to be totally tax-free (also called “qualified”), the individual must have had a Roth account for at least 5 years and must be at least 59 ½ years old.
Those who take distributions before the distributions are qualified will have to pay taxes on the portion of their distribution that is due to earnings. The 5-year rule and the age 59 ½ restrictions apply to both Roth IRAs and the Roth TSP.
John Grobe, President of Federal Career Experts, is an expert in the area of federal employee retirement and benefits. This expertise comes from his 26 year federal career in which he managed the retirement program in a 3,500-employee office of a large federal agency.
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