Pay & Benefits Watch: Support Network
Alex M. Parker | Government Executive
November 12, 2009
If the Military Officers Association of America has its way, one Veterans Day gift that service members eventually could enjoy is enhanced benefits with their Thrift Savings Plan.
In testimony during a congressional hearing last week, Michael Hayden, a retired Air Force colonel and deputy director of government relations for the association, proposed allowing military and civilian TSP enrollees to move existing savings into the Roth accounts that will soon become a feature of the plan.
Hayden noted that the Roth offering — mandated by the Family Smoking Prevention and Tobacco Control Act passed in June, is likely to be popular with military service members. Roth accounts allow participants to pay taxes before they make investments, rather than when they withdraw the money upon retirement. The accounts are especially beneficial for younger employees who expect their income to rise during their careers, putting them in a higher tax bracket when they retire.
“Providing a conversion option is a win-win for both the participant and the federal government,” Hayden said during his testimony, noting that the taxes paid on the Roth accounts would go directly into the federal coffers.
The idea seemed to pique the interest of Rep. Stephen Lynch, D-Mass., chairman of the House Oversight and Government Reform Committee’s federal workforce subcommittee. Don’t count on this benefit just yet, however.
As TSP Executive Director Gregory Long noted, this option normally is reserved for individual retirement accounts, which are different from the 401(k) plans the TSP is modeled after. IRAs typically are established by the employee, whereas 401(k) plans are created and partially funded by the employer. Current Internal Revenue Service rules don’t allow workers to roll funds from a 401(k) plan to a Roth 401(k), and the complicated bookkeeping required in the conversions could make them a tough sell.
Hayden also recommended giving service members the flexibility to contribute a set dollar amount — rather than a percentage of their incomes — to their TSP accounts. Civilian employees have both options but military members are limited to the percentage, which Hayden said restricts their ability to maximize their benefits.
Congress also has bolstered some emergency benefits for service members stationed overseas by ensuring that they will have an extra year to qualify for homebuyers tax credits.
Last week, lawmakers extended an $8,000 first-time homebuyer credit through April 2010. The 2009 Worker, Homeowner and Business Assistance Act (H.R. 3404) included language by Sen. Claire McCaskill, D-Mo., and Charles Grassley, R-Iowa, giving military personnel serving abroad in 2009 or 2010 an extra year to qualify for the credit. The law also eliminates a repayment requirement for personnel who are forced to sell their homes as a result of their official service, and ensures military members are not taxed on payments to make up for declining home values in areas where there are base closures.