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What is Roth TSP?

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Quick Answer

Roth TSP stands for Roth Thrift Savings Plan, which is a retirement savings plan created for current or retired employees of the federal civil service, including those in the military, explains Investopedia. Roth TSPs require tax payments up front, whereas traditional TSPs defer tax until withdrawal, states the TSP website.

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Full Answer

Thrift Savings Plans are similar to the types of savings plans many private corporations offer their employees, such as 401(k) plans, explains the TSP website. Like 401(k) plans, TSPs come in both traditional and Roth versions. Roth investments allow investors to withdraw funds from their investments during retirement without paying any tax on those withdrawals or on the growth of the investment. However, investors must pay tax on income as normal before contributing to a Roth investment.

No tax upon retirement is especially useful for young investors who may expect their investments to grow considerably, and for combat soldiers who pay no tax at all, explains Military.com. Due to the lack of taxes on combat income, Military.com recommends Roth investments in most circumstances.

The Federal Retirement Thrift Investment Board administers TSPs and holds assets in the Thrift Savings Fund, states the TSP website. Congress created the TSP program in 1986 with the Federal Employee's Retirement System Act, reports Investopedia. TSPs offer various types of funds, including government securities, common stock funds and life cycle funds.

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