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 Tax Treatment of Thrift Savings Plan (TSP) Contributions

The TSP offers you two tax treatments for your employee contributions when you make a contribution election:

  • Traditional TSP. If you make traditional contributions, you defer paying taxes on your contributions and their earnings until you withdraw them. If you are a uniformed services member making tax-exempt contributions, your contributions will be tax-free; only your earnings will be subject to tax at withdrawal.

  • Roth TSP. If you make Roth contributions, you pay taxes on your contributions as you are making them (unless you are making tax-exempt contributions from combat pay) and get your earnings tax-free at withdrawal, as long as you are at least age 59½ (or disabled) and your withdrawal is made at least 5 years after the beginning of the year in which you made your first Roth contribution.

Prior to May 2012 all contributions were traditional (pre-tax). The Thrift Savings Plan began accepting Roth TSP employee contributions in May 2012 but the first date Department of the Navy civilian employees could elect Roth TSP contributions was June 25, 2012.

If you make Roth contributions you will have a Roth “balance” in your account, in addition to any traditional “balance”. Traditional and Roth money must be kept separate in your account for tax purposes, but the two “pots” of money together make one TSP account balance. Any transaction you make – such as interfund transfers, contribution allocations, loans, beneficiary designations, and withdrawals-will apply in equal proportions to the Roth and traditional balances.

Roth TSP contributions may be made in addition to or in lieu of traditional TSP contributions and are subject to the elective deferral limit. Combined traditional and Roth TSP contributions cannot exceed IRS the elective deferral limit.

If you are automatically enrolled in the TSP, your contributions are traditional.

If you are age 50 or older, you may elect to make Roth TSP catch-up contributions. Combined traditional and Roth catch-up contributions cannot exceed the IRS elective deferral limit.

If you are a FERS employee, Agency Automatic (1%) and Agency Matching Contributions are a part of your traditional balance. Roth TSP contributions are added to traditional TSP contributions when determining the percentage of pay being contributed for purposes of the Agency Matching Contribution formula.

You can transfer Roth 401(k), Roth 403(b), and Roth 457(b) (but not Roth IRA) money into the Roth balance of your TSP account. Pre-tax transfers will continue to be placed in your traditional TSP balance.

When you withdraw your account, you will be able to separately transfer any portion of your Roth and traditional balances to IRAs or other eligible employer plans.

 Action Required to Change the Tax Treatment of Your TSP Contributions

1. You can elect to change from traditional TSP to Roth TSP contributions (or vice versa) by using EBIS or by contacting the Benefits Line.

2. Your TSP election will be effective at the beginning of the next pay period following your election.

3. You should review the biweekly Leave and Earnings Statement you receive from your payroll office to ensure correct deductions have been withheld for your election and to avoid errors for which you could be indebted. Refer to the Effective Date Chart to determine when your election should be reflected in your pay check.

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