Roth Accounts for Federal Employees?

Riddle: What does a Roth 401(k) account have to do with smoking cigarettes?
Answer: Read on.

I am a big fan of Roth savings, as expressed in a number of prior posts; particularly for those who would like to save more in their tax-favored retirement plans, but are prevented from doing so because of limitations in the Tax Code. So Roth 401(k) accounts, potentially available since 2006, have been a great recent development, since they carry no income-related restrictions. But Roth 401(k) accounts are only an option if your employer chooses to make them available.

What about federal employees? Federal employees are covered by the Thrift Savings Plan, a 401(k)-like retirement savings plan. Unfortunately, there is no provision for Roth accounts in the Thrift Savings Plan, so federal employees are out of luck.

But that may change soon. The Board governing the Thrift Savings Plan has this week endorsed a proposal to add a Roth option to the TSP. That’s the good news. Now here’s the bad news: actually adding such a feature requires legislation. The House of Representatives passed a bill adding Roth accounts to the TSP, but the Senate and President also have to act.

Now back to the riddle: What does Roth saving have to do with cigarette smoking? In the real world, nothing. In Bizarro congressional world, apparently they are deeply related in ways the rest of us can’t begin to fathom. The provision for adding a Roth savings option to the TSP is included in a bill to give the FDA authority to regulate tobacco. So whether federal employees get a favorable retirement saving opportunity may hinge on how your senator feels about giving the FDA the power to regulate tobacco.

Federal employees, join the rest of us. We in private industry only get Roth opportunities if our employers choose to add it to our 401(k) plans; you only get them if your senator believes in federal regulation of tobacco.