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The law adds a Roth contribution feature to the Thrift Savings Plan (TSP), while keeping its traditional tax deferral feature. TSP allows employees to make contributions from their salaries into their accounts and the amount contributed is deducted from the employee’s income in the year the contribution is made. Employees do not pay taxes on the TSP assets until taking the money out. A Roth contribution is an after-tax employee contribution to the TSP account; that is, the contribution comes out of regularly taxed income. However when the money is withdrawn, it is not taxed. Employees will have a choice of whether they want the up front tax deduction in the traditional TSP, or pay taxes now for a future tax deduction with Roth contributions.
The TSP is similar to a private company 401(k) and the new Roth contribution feature is similar to a new private company option called a Roth 401(k).
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