Two riders in The American Taxpayer Relief Act of 2012 (the Fiscal Cliff Deal) apply directly to Federal Employee Benefits. They are:
1) Increasing the Transportation Incentive Program (TIP), a program to incentivize federal employees to use mass transport or vanpools, to a monthly stipend of $240. The language in the bill restores parity between commuter expenses for parking (currently $240/month) vs. mass transport (was $125). They are now both set at $240, retroactive to 01 January 2013.
2) Ability to convert money in your employer-sponsored 401k account to the employer-sponsored Roth 401k account (if offered by the employer).
Just like the creation of the Roth TSP, It will probably take the TSP 12-18 months to catch up with this provision, but my prediction is that it will happen. This provision in the Fiscal Cliff Deal was put there as revenue grab to get income taxes now (immediately upon 401k conversion to Roth 401k) vs in the future (eventual withdrawals from 401k). My take on the conversion is that it is probably a bad idea to convert a Traditional IRA/401k to a Roth IRA/401k right now unless you are absolutely certain you will be in a higher marginal bracket when you retire.
As an aside, “The American Taxpayer Relief Act of 2012”? If my recollection is correct, this was created and passed by both houses of congress on January 02, 2013…
There are some items about the TSP I do not like (limited investment choices), but the pluses of the TSP far outweigh the minuses. In fact, as long as I live, I swear I will NEVER pull 100% of my funds out of the TSP.
Why? Even if you leave Federal Service before your minimum retirement age (i.e. you resign or quit), you are still eligible for LIFE to retain the benefit of your TSP account (as long as you keep a minimum account balance of $200 in the TSP).
Here’s why you should NEVER completely exit your TSP:
- At retirement, the TSP can be easily be converted to an annuity, with industry-leading low expenses.
- If you are no longer working for Uncle Sam, you may roll money OUT out of the TSP at any time to an IRA or your current employer’s 401k (in tax jargon this is a “Trustee-to-Trustee transfer”, a non-taxable event). If this is your case, roll some money out of the TSP if you would like more flexibility in investment choices (IRA) or if you like the investment options and expenses of your current employer’s Qualified Plan (i.e. 401k).
- The TSP will permit you to roll retirement funds back IN to the TSP at any time from an IRA or Qualified Plan.
- TSP has the G fund, which is the best vehicle anywhere to park your short-term money. The G-fund gives you guaranteed returns equivalent to a 3-year CD combined with the liquidity of a money market fund. There’s no other financial product like it available.
Bottom line: even if you leave the employment of Uncle Sam, don’t leave the TSP.
For further reading on the many methods of withdrawing TSP funds: Withdrawing Your TSP Account After Leaving Federal Service
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